Investment Insights Podcast: Outlook moving forward

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Vice President

On this week’s podcast (recorded December 2, 2016), Jeff provides an outlook moving forward given the price action we’ve seen since the election. Here are some quick hits before you have a listen:

 

  • There have been some clear winners and losers in the markets since the election:
    • Winners: U.S. stocks
    • Losers: International stocks and the bond markets
  • We may move out of the muddle through economy we’ve been in over the last several years to one that looks more like a traditional second half of the business cycle

 

For Jeff’s full insight, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Addressing post-election anxiety

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Global events, such as the intensely divided presidential election that we just lived through, are certain to generate some periods of market volatility of varying lengths in addition to a significant amount of stress. However, we urge financial advisors and investors to retain a few dos and don’ts to help manage post-election anxiety:

Don’t equate risk with volatility. Volatility does not equal risk. Risk is the likelihood that you will not have the money to live the life you want to live. Paper losses are not “risk” and neither are the gyrations of a volatile market. Long term investors have been rewarded by equity markets, but those rewards come at the price of bravery during periods of short-term uncertainty.

Do know your history. Despite what political pundits and TV commentators would have you believe, this is not an unusually scary time to be alive. The economy continues to grow (slowly) and most quality of life statistics (crime, drug use, teen pregnancy) have been declining for years. Markets have always climbed a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.

Don’t give in to action bias. At most times and in most situations, increased effort leads to improved outcomes. Investing is that rare world where doing less actually gets you more.

Do take responsibility. Most investors are likely to tell you that timing and returns are the biggest drivers of financial performance, but research tells another story. Research suggests that you are the best friend and the worst enemy of your own portfolio. Over the last 20 years, the market has returned roughly 8.25% per annum, but the average retail investor has kept just over 4% of those gains because of poor investment behavior.1 At times when market moves can feel haphazard, it helps to remember who is really in charge.

Don’t focus on the minute to minute. If you are investing in the stock market you have to think long-term. As mentioned above, you can avoid action bias by not checking your portfolio status all day every day, especially during times of higher volatility. Limited looking leads to increased feelings of security and improved decision-making.

Do work with a professional. Odds are that when you chose your financial advisor, you selected him or her because of their academic pedigree, years of experience or a sound investment philosophy. Ironically, what you may have overlooked is the largest value he or she adds—managing your behavior. Studies put the value added from working with an advisor at 2 to 3% per year. Compound that effect over a lifetime, and the power of financial advice quickly becomes evident.

Source: (1) Dalbar, Inc. Quantitative Analysis of Investor Behavior. Boston: Dalbar, 2015.

Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.

Where will you be when the dust settles?

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

Since Donald Trump has been elected as the 45th President of the United States, the question we hear repeated most often is “what happens now?” While the immediate focus will be outlining transition of power plans, political appointments and the first 100 days of the Trump presidency, we’d be hard-pressed to find any expert who believes the uncertainty will end then.

Trump campaigned on a platform calling for sweeping change and dramatic deviations from the Obama administration. He wants to overhaul immigration policies, health coverage, taxation, and trade policies, all of which will have significant economic implications. His policies have yet to be clearly defined and we’ll have to wait to see if those policies will meet Congress and the Courts’ approval. There is also much speculation on who will be named to head the Treasury and whether he will follow through on his intention to replace Janet Yellen as Federal Reserve Chair. While these and many other economic dust particles swirl in the air, one thing we know for sure: the post-election uncertainties will create market volatility.

Even the savviest investor or most skilled asset manager cannot predict or control where the markets will land when the dust settles. So, instead of trying to glean actionable insights from uncertainty, we urge investors to focus on matters within control, such as:

  • An understanding that volatility is part of investing. In a recent blog, Dr. Daniel Crosby explained the impact elections have had on previous markets. It is worth re-reading and repeating that election cycles are like any other market cycles. Trends and patterns exist which may allow some securities and asset classes to outperform others. In light of the number and weight of the unknowns associated with a Trump presidency, the patterns of previous election cycles may bear little (if any) relevance to our experiences and decisions today. To put the volatility in perspective, try to repeat the lyrics of the famous Shirelle’s song, “Mama said there’d be days like this.” Volatility is part of investing and should not cause you to question your overall investment strategy. However, investors must seek to reduce volatility in their portfolio while maintaining the opportunity for appreciation.
  • Diversification can bring peace of mind. In addition to the economic benefits of investing broadly in a variety of asset classes, there are emotional gains to be made as well. When your portfolio spans asset classes, geographic regions, business sectors and investment styles, you know that while some conditions may be negative for one sector, they could be positive for others. You become less concerned about the performance of a particular asset class and focus more on how your total-return performance impacts your personal goals and benchmarks.
  • Your reliance on a competent advisor. Studies have shown that the greatest value provided by a financial advisor is behavioral coaching. It is in times of volatility and uncertainty that advisors earn their keep, so don’t be afraid to seek assurances and direction from your advisor.
  • A long-term perspective. Investing for the long-term can be daunting, so it may be helpful to remind yourself that it pays to wait. The worst return of any 25-year period was 5.9% annualized1. Time is on your side. As Crosby cautions, “Markets always have and always will climb a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.”
  • Your goals are your benchmark. You have the power to control your actions, follow a plan, and make investment decisions on merit and not emotions. As John Coyne’s blog mentioned earlier in the week, it is important that you avoid emotions that could wreak havoc on a lifetime of careful planning. The degree with which you can maintain composure and stick with the plan put in place by your advisor is the single biggest predictor of where you will stand relative to your long-term financial goals when the dust settles.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results. 

Investment Insights Podcast: Four Areas of Focus in the Last Quarter

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Vice President

On this week’s podcast (recorded October 21, 2016), Jeff highlights four focus areas to watch during the last quarter of 2016: the Fed, earnings, signs of recession, and the election.

  1. The Federal Reserve. Watch for a tightening of interest rates in December and dovish guidance (maintaining low interest rates) for 2017.
  2. Earnings. Watch for improvement in earnings as the pressure of low oil prices on energy companies starts to roll off.
  3. Signs of Recession. Watch for indicators that the business cycle is over. We believe we are in the second half of the cycle, and while it has been about seven years, economic growth has been more muted.
  4. Election. Watch for volatility as elections tend to cause uncertainty in the markets. However, markets tend to bounce back following elections as some of the uncertainty fades away.

For Jeff’s full insight, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Fun Facts on The Election & The Stock Market…and Why None of Them Matter

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

With less than one month remaining until the election, the already frenzied political coverage is sure to become even more fevered in the coming days. While each presidential election is unpredictable, it seems certain that this one is destined for the history books. For all of their sophistication, are there any political pundits that correctly predicted the rise of Bernie Sanders or that Donald Trump would emerge from a pack of 16 more politically experienced Republicans?

Adding to the confusion is that recent popular votes of all stripes—from Brexit to the Colombian peace deal—have not gone the way pollsters predicted. In the face of all of this uncertainty it is natural to wonder, “could the U.S. be the next surprise?” And a natural follow-on question is, “What does all of this mean for my money?” To begin to answer these questions, let’s look at some historical trends around U.S. elections and the stock market.

Incumbent vs. Challenger

Most considerations of political impact examine how potential candidates might influence the market, but let’s begin our study by flipping that on its head and ask, “How might the market help determine who wins the election?” As you might expect, incumbent parties are helped enormously by a rising market and challengers tend to be swept into power by a poor market.

washington_wallstreetSince 1928, 14 of the 22 presidential elections saw a rise in the broad market in the three months leading up to the big vote. In all but two of those instances, the incumbent party stayed in their comfy digs on Pennsylvania Avenue. But what of the eight instances where the market was down in the run up to the election? All but one of those more bearish periods saw the incumbent ousted from power.

This phenomenon was seen most recently in the failed reelection campaigns of George H.W. Bush (1992) and Jimmy Carter (1980). Bill Clinton, sensing the natural tendency of hard economic times to bring about change chided the senior Bush with his now famous “It’s the economy, stupid” line. The date to watch for this particular metric in this election cycle is August 1, at which time the S&P 500 closed at 2,170.84.

Democrats versus Republicans

Inasmuch as Republicans are broadly perceived as the more pro-business of the two parties, it may come as a surprise that the stock market has performed considerably better under Democratic than Republican presidents. In fact, since 1945 the average annual gain under a Democratic president is 9.7%, easily besting the average gain of 6.7% on the Republican’s watch.

But a closer look at the statistics tells a more nuanced story as, to borrow a Dickensian turn of phrase, Republicans have presided over both the best of times and the worst of times. The market’s most successful run occurred under Republican Gerald Ford—a whopping 18.6% annualized. However, the elephants also own the only two losing records in modern (post-1945) market history, with George W. Bush (-4.6% annualized) and Richard Nixon (-5.1% annualized) both overseeing periods of extended bearishness.

electionThe Election Cycle

Having now examined the market’s ability to predict the winner of the election and the impact of parties on performance, let’s look at the influence of the presidential cycle on market returns.

Since 1833, the market has typically produced the best returns in the year preceding an election, averaging 10.4% annualized. Election years themselves have tended to be good as well, with average returns at right around 6%. The worst years in the election cycle have been the first and second years of a president’s term, averaging 2.5% and 4.2% respectively. The conventional logic has been that familiarity breeds comfort and that the uncertainty surrounding the economic policies of a new leader have driven low returns early in the cycle.

Why None of This Matters

Having gone to some pain to research the relationship between the election and the market, let me now suggest that none of what you have read above matters. None of it. Our desire to look for signal in the unending noise surrounding political campaigns is a waste of time at best and can be dangerous to our financial well-being at worst. The government produces data on 45,000 pieces of economic each year and when they are laid on top of the mountain of data collected by political scientists, correlations emerge and most of them are spurious. To quote political pollster Nate Silver, “The temptation that some economists succumb to is to put all this data into a blender and claim that the resulting gruel is haute cuisine.” To make this point more concretely, consider some of the following:

  • Since 1928, election years like this one without an incumbent running for reelection have been some of the worst on record, clocking a -2.8% annualized return. Had you been aware of and acted on this information, you would missed the 5.37% gain for the large cap index year to date.
  • As discussed above, the market tends to gain 6% in election years. Great, but small comfort to those who lost 34% in 2008, an election year. It has been joked that a six-foot man can easily drown in a river that is three feet deep on average (since many parts of the river might be much deeper). The same can certainly be said of market returns where long-term averages tend to mask the more dramatic volatility underneath. The performance of the market is more attributable to economic conditions than superior policies. Democratic Presidents Roosevelt and Obama both inherited markets broken by the Great Depression and Great Recession respectively. While both deserve credit for guiding the nation during difficult times, they are also the beneficiaries of a tendency for stock prices to mean-revert and bounce back from dramatic lows. Bulls and bears may have less to do with donkeys and elephants than the statistics might suggest.
  • Finally, consider the research suggesting that the first year of a President’s term leads to the most paltry returns. Had you acted on this knowledge, you would have missed the 23.45% rise in the market in Obama’s first year in office and the double-digit advance in the first year of Bill Clinton’s presidency. By definition, averages are generalities that are not true of any specific situation and relying on them can cause deviation from an otherwise sound financial plan.

Election years introduce volatility and uncertainty into financial markets that leave investors and advisors alike searching for a calm port in a wild political storm. But in our efforts to make sense of the political and economic landscape, we run a real risk of finding connections where none exist. In 2016, one of America’s most powerful political dynasties was nearly upended by an independent and self-proclaimed democratic socialist. The Republican Party is now helmed by a reality television star who has never held office. The Cubs are in the playoffs.

At uncertain times like this, investors must return to what Jason Zweig refers to as “controlling the controllable.” The outcome of the election and the accompanying market reaction are very much unknowable. What remains very much in your control are your ability to diversify across multiple asset classes, maintain a long-term focus and work closely with a competent advisor to manage your own behavior. I don’t know who will win the White House and neither do you, but I know with some certainty that patient investors adhering to first principles will always come out ahead.

Sources:

http://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html

https://tickertape.tdameritrade.com/investing/2016/08/can-election-predict-market-performance-10313

https://www.ml.com/articles/how-presidential-elections-affect-the-markets.html

http://money.cnn.com/2015/10/28/investing/stock-market-democrats-republicans/index.html

http://www.comstocksmag.com/article/data-driven-0

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: October Market & Economic Outlook

magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager, Brinker Capital

On this podcast, Amy reviews third quarter market activity and the themes to monitor for the rest of the year. Here are some quick hits before you have a listen:

  • The third quarter was marked by a continuation of muted global growth with risk assets posting solid returns.
  • Expectations for the next Fed rate hike moved further out on the calendar from September to December, further fueling risk assets. Fed rhetoric may create the dynamic where “good news is bad news.”
  • U.S. economic data releases have been mixed, but lean positive. Stronger wage growth, low inflation and low unemployment levels leads us to believe that while we are likely late in the business cycle, there is still room for growth before the next recession.

Click here to listen to the full podcast. A PDF version of Amy’s commentary is available to download as well. Find it here >>

Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. Indices are unmanaged and an investor cannot invest directly in an index. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Brinker Capital Inc., a Registered Investment Advisor.

Investment Insights Podcast: Focusing In

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Vice President

On this week’s podcast (recorded September 23, 2016), Jeff focuses on three important events–third quarter earnings season, the election, and the Federal Reserve meeting in December. Highlights of his discussion include:

  • We view the negative impact on the energy sector to be mostly behind us, with year-over-year comparisons looking much more favorable.
  • The election, and the uncertainty it brings, will weigh on markets to some extent. Either way the election results go, we should have a little more clarity on forward policy, which is a positive.
  • A November interest rate hike is not off the table, but very unlikely. Prognosticators see a December hike becoming more likely.

For Jeff’s full insight, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Outlook Positive Despite Rate Hike Possibility

magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager, Brinker Capital

On this week’s podcast (recorded September 9, 2016), Amy reviews how the markets performed during August and provides an outlook to what’s ahead. Here a few quick hits before you listen:

  • August was a relatively calm month for financial markets. Large cap developed market equities eked out small gains, while emerging markets, high-yield bonds and small caps fared better.
  • U.S. economic data releases have been mixed, but lean positive. Yet, with better economic data comes the possibility of an additional Fed interest rate hike sooner rather than later.
  • While the possibility of a rate hike could adversely affect markets in the near term, it doesn’t change our positive intermediate-term outlook.
  • Risks facing the economy include the potential for a central bank policy mistake, uncertainty surrounding the upcoming presidential election, and disappointing economic growth outside of the U.S.
  • We expect higher volatility to continue as we digest the actions of global central banks, but our view on risk assets still tilts positive over the intermediate term. Increased volatility often leads to pockets of attractive opportunities.

Click here to listen to Amy’s full audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

August 2016 Monthly Market and Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

On this podcast, Amy reviews July’s market activity and provides an outlook into what’s in store for August and the rest of 2016. Here are some quick hits before you have a listen:

  • Investor confidence resumed and fears of global contagion dissipated when it became evident that the negative implications of the Brexit decision would likely be contained to the UK and areas of Europe.
  • U.S. real GDP data was lackluster, but consumer spending remained strong and jobless claims low.
  • Despite the shock of the Brexit decision during the end of the second quarter, international equities finished the month in strong positive territory, outpacing domestic equities.
  • We expect a higher level of volatility as markets assess the impact of slower global growth, the actions of policymakers and the uncertainty surrounding the U.S. presidential election; but our view on risk assets still tilts positive over the near term.

Click here to listen to the full podcast. A PDF version of Amy’s commentary is available to download in the Brinker Capital Resource Center. Find it here >>

Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. Indices are unmanaged and an investor cannot invest directly in an index. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Brinker Capital Inc., a Registered Investment Advisor.

Earnings Season Upon Us, but Information Void Looms

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Investment Manager

On this week’s podcast (recorded August 1, 2016), Jeff covers the current themes impacting markets, including Brexit, earnings season, and the presidential election. Highlights of his discussion include:

  • Since the initial negative reaction from the Brexit vote in late June, markets have rebounded sharply, with U.S. stocks up over 15% since the June 27 lows and international stocks up over 10%.
  • Late summer and fall loom as somewhat of an information void, where economic data is a little sparser and investors have a harder time seeing the impetus for the next leg up in the market.
  • It wouldn’t be surprising to see a pause in the upward momentum in the markets until we get more clarity about the direction of the election.
  • This past week, housing, earnings, employment and wages all had positive reports, but were offset by a very disappointing GDP number.

For Jeff’s full insight, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.