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.

Investment Insights Podcast: Expectation for Positive Trend to Continue

Hart_Podcast_338x284Chris Hart, Senior Vice President

On this week’s podcast (recorded October 14, 2016), Chris provides a market update as we inch closer to the end of the year. Listen in as he discusses recent market performance and what we should look forward to.

Quick hits:

  • Dollar strength on the heels of a potential rate hike in December has been a headwind and weighed on stocks.
  • Despite being almost 90 months into a bull market with a 222% gain for the S&P 500, the second longest on record, the market is not showing many signs of topping out.
  • Stock valuations are elevated, but not alarmingly.
  • Our intermediate-term outlook remains positive and we don’t see many signs of recession in the near- to intermediate-term, but we do recognize that this a late-cycle bull market and risks remain.

For the rest of Chris’s 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: 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: Seasonally Stronger Markets Ahead

Hart_Podcast_338x284Chris Hart, Core Investment Manager

On this week’s podcast (recorded September 16, 2016), Chris provides a fresh market update as volatility has picked up recently. Listen in as he discusses market performance and what’s to come in the fourth quarter.

Quick hits:

  • Returns are positive for most segments of the markets; however, volatility has picked up recently and equities have declined over the past week or two
  • This is typically a weak part of the calendar year for the markets, but this soft period should be behind us soon as mid-October typically marks the end of this softer stretch in the markets before seasonally stronger fourth quarter takes hold
  • A rate hike can’t be discounted completely and could be a shock to the markets if it happens.

For the rest of Chris’s 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: Your Third Quarter Status Report

Hart_Podcast_338x284Chris Hart, Core Investment Manager

On this week’s podcast (recorded August 30, 2016), Chris is back on the mic to provide a market update as the end of the third quarter draws near. Discussion topics include the health of global and domestic markets and reaction to the latest Fed meeting, but here a few quick hits before you listen:

  • So far in the third quarter, despite major indices posting modest losses last week, markets continue to move higher as we approach Labor Day and the end of summer.
  • Fed Chair Yellen is still not willing to commit to a rate hike, but also noted that the case for a rate hike has strengthened in recent months.
  • While the September rate hike probability fell to less than 10% post-Brexit, it has now moved to 42% according to Haver Analytics in recent weeks.
  • Overall, we remain constructive on risk assets, but believe prudence is warranted and volatility should continue to trend higher.

For the rest of Chris’s 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.

May 2016 Monthly Market And Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

Continuing the rally that began in mid-February, risk assets posted modest gains in April, helped by more dovish comments from the Federal Reserve and further gains in oil prices. Expectations regarding the pace of additional rate hikes by the Fed have been tempered from where they started the year. Economic data releases were mixed, and while a majority of companies beat earnings expectations, earnings growth has been negative year over year.

The S&P 500 Index gained 0.4% for the month. Energy and materials were by far the strongest performing sectors, returning 8.7% and 5.0% respectively. On the negative side was technology and the more defensive sectors like consumer staples, telecom and utilities. U.S. small and micro-cap companies outpaced large caps during the month, and value continued to outpace growth.

International equity markets outperformed U.S. equity markets in April, helped by further weakness in the U.S. dollar. Developed international markets, led by solid returns from Japan and the Eurozone, outpaced emerging markets. Within emerging markets, strong performance from Brazil was offset by weaker performance in emerging Asia.

The Barclays Aggregate Index return was in line with that of the S&P 500 Index in April. Treasury yields were relatively unchanged, but solid returns from investment grade credit helped the index. High-yield credit spreads continued to contract throughout the month, leading to another month of strong gains for the asset class.

We remain positive on risk assets over the intermediate-term; however, we acknowledge that we are in the later innings of the bull market that began in 2009 and the second half of the business cycle. The worst equity market declines are typically associated with recessions, which are preceded by aggressive central bank tightening or accelerating inflation, factors which are not present today.  While our macro outlook is biased in favor of the positives and a near-term end to the business cycle is not our base case, the risks must not be ignored.

A number of factors we find supportive of the economy and markets over the near term.

Global monetary policy remains accommodative: The Fed’s approach to tightening monetary policy is patient and data dependent.  The Bank of Japan and the ECB have been more aggressive with easing measures in an attempt to support their economies, while China may require additional support.

Stable U.S. growth and tame inflation: U.S. economic growth has been modest but steady. While first quarter growth was muted at an annualized rate of +0.5%, we expect to see a bounce in the second quarter as has been the pattern. Payroll employment growth has been solid and the unemployment rate has fallen to 5.0%. Wage growth has been tepid at best despite the tightening labor market, and reported inflation measures and inflation expectations, while off the lows, remain below the Fed’s target.

U.S. fiscal policy more accommodative: With the new budget, fiscal policy is poised to become modestly accommodative in 2016, helping offset more restrictive monetary policy.

Constructive backdrop for U.S. consumer: The U.S. consumer should see benefits from lower energy prices and a stronger labor market.

However, risks facing the economy and markets remain, including:

Risk of policy mistake: The potential for a policy mistake by the Fed or another major central bank is a concern, and central bank communication will be key. In the U.S. the subsequent path of rates is uncertain and may not be in line with market expectations, which could lead to increased volatility. Negative interest rates are already prevalent in other developed market economies. An event that brings into question central bank credibility could weigh on markets.

Slower global growth: Economic growth outside the U.S. is decidedly weaker, and while China looks to be improving, a significant slowdown remains a concern.

Another downturn in commodity prices: Oil prices have rebounded off of the recent lows and lower energy prices on the whole benefit the consumer; however, another significant leg down in prices could become destabilizing. This could also trigger further weakness in the high yield credit markets, which have recovered since oil bottomed in February.

Presidential Election Uncertainty: The lack of clarity will likely weigh on investors leading up to November’s election. Depending on the rhetoric, certain sectors could be more impacted.

The technical backdrop of the market has improved, as have credit conditions, while the macroeconomic environment leans favorable. Investor sentiment moved from extreme pessimism levels in early 2016 back into more neutral territory. Valuations are at or slightly above historical averages, but we need to see earnings growth reaccelerate. We expect a higher level of volatility as markets assess the impact of slower global growth and actions of policymakers; but our view on risk assets still tilts positive over the near term. Higher volatility has led to attractive pockets of opportunity we can take advantage of as active managers.

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. 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.

February 2016 Monthly Market And Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

It was a rough start to 2016 for investors. Fears of weaker growth in the U.S. and China and volatile oil prices weighed on global equity markets. With signs of slower growth in the U.S., investors began to worry about the impact of additional tightening moves by the Federal Reserve. Global equities and commodities experienced mid-single digit declines and high-yield credit spreads widened further. U.S. Treasuries benefited from the flight to safety and yields declined. After strong gains in 2015, the strength in the U.S. dollar moderated to start the year.

The S&P 500 Index declined -5% in January. The more defensive sectors – telecom, utilities and consumer staples – were able to produce gains against the backdrop of weaker economic data, but all other sectors were negative on the month. Small caps lagged large caps, while microcaps experienced double-digit declines. Growth lagged value across all market caps, due to the underperformance of the healthcare, consumer discretionary and technology sectors.

International equity markets were in line with U.S. markets in local terms, but lagged slightly in U.S. dollar terms. Emerging markets finished slightly ahead of developed markets in January, despite continued weakness in the equity markets of China and Brazil. The equity markets of both Europe and Japan fell during the month; however, Japan was able to erase some losses on the last trading day of the month when the Bank of Japan moved to implement a negative interest rate policy on excess reserves held at the central bank.

Yields fell across the curve in January as investors preferred the safety of government bonds. The 10-year Treasury note fell 39 basis points to end the month at a level of 1.88%. The decline was felt in both real yields and inflation expectations, and long duration assets benefited. The yield curve flattened marginally. Municipal bonds continued their solid performance run with a 1% gain. Investment grade credit spreads widened, but the asset class was still able to eke out a gain. The high-yield index, on the other hand, experienced another 80 basis points of spread widening and declined -1.6% for the month. Technical pressures still weigh on the high-yield market; however, we have yet to see a meaningful decline in fundamentals outside of the energy sector, at an absolute yield above 9% today, we view the asset class as attractive.

We remain positive on risk assets over the intermediate-term as we view the current market environment as a correction period rather than the start of a bear market. The worst equity market declines are typically associated with recessions, which are preceded by aggressive central bank tightening or accelerating inflation, factors we do not believe are present today. However, we acknowledge that we are in the later innings of the bull market that began in 2009 and the second half of the business cycle, and, while a recession is not our base case, the risks must not be ignored.

A number of factors we find supportive of the economy and markets over the near term.

  • Global monetary policy accommodation: Despite the Federal Reserve beginning to normalize monetary policy with a first rate hike in December, their approach should be patient and data dependent. More signs point to the Fed delaying the next rate hike in March. The Bank of Japan and the ECB have been more aggressive with easing measures in an attempt to support their economies, and China is likely going to require additional support.
  • U.S. growth stable and inflation tame: U.S. economic growth has been modest but steady. Payroll employment growth has been solid and the unemployment rate has fallen to 4.9%. Wage growth has been tepid at best despite the tightening labor market, and reported inflation measures and inflation expectations remain below the Fed’s target.
  • Washington: With the new budget fiscal policy is poised to become modestly accommodative, helping offset more restrictive monetary policy.

However, risks facing the economy and markets remain, including:

  • Policy mistake: The potential for a policy mistake by the Fed or another major central bank is a concern, and central bank communication will be key. In the U.S. the subsequent path of rates is uncertain and may not be in line with market expectations, which could lead to increased volatility.
  • Slower global growth: Economic growth outside the U.S. is decidedly weaker, and a significant slowdown in China is a concern.
  • Wider credit spreads: While overall credit conditions are still accommodative, high-yield credit spreads have moved significantly wider, and weakness has spread outside of the commodity sector.
  • Prolonged weakness in commodity prices: Weakness in commodity-related sectors has begun to spill over to other areas of the economy, and company fundamentals are deteriorating.
  • Geopolitical risks could cause short-term volatility.

On the balance the technical backdrop of the market is weak, but valuations are back to more neutral levels and investor sentiment, a contrarian signal, reached extreme pessimism territory. Investors continue to pull money from equity oriented strategies. We expect a higher level of volatility as markets digest the Fed’s actions and assess the impact of slower global growth; however, our view on risk assets leans positive over the near term. Increased volatility creates opportunities that we can take advantage of as active managers.

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. 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

Happy New Year?

Stuart QuintStuart P. Quint, CFA, Senior Investment Manager & International Strategist

Although we are only nine business days into 2016, markets have gotten off to a rough start. As of January 13, 2016, the S&P 500 was down -7.7% while a moderate-risk[1] benchmark was down -4.2%. In fact, this year has seen the worst start to any calendar year on record.

Unlike past corrections, the catalyst for the recent sell-off in markets is less obvious. One thought is that we are seeing a delayed response to the Federal Reserve’s December rate hike. Markets appear displeased with the timing of the Fed’s action, given the stalling economic growth. In our opinion, the Fed should have considered raising rates a year ago when economic growth was stronger.

Another consideration, it’s conceivable that investors are finally grasping the reality of slower growth in China. This is a factor that we have monitored for quite some time (and a factor in being underweight large emerging markets); but, the timing as to why the markets are worrying about China now is less clear.

There are other factors, too, that might be contributing to the downbeat mood in markets:

  • Slowdown in the Chinese economy and continued devaluation of its currency
  • Continued weakness and flight of capital in emerging markets
  • Weak oil prices (lower capital spend offsetting benefit to consumers)
  • Narrow leadership of U.S. equities (e.g. “FANG” stocks driving markets – high valuation, momentum, expectations with little room for disappointment)
  • Selloff in high-yield bonds
  • Continued deterioration in U.S. and global manufacturing
  • Strengthening of U.S. dollar and its corresponding hit to corporate earnings
  • Ongoing weakness in corporate revenue growth and economic growth
  • 2016 U.S. presidential elections
  • Disappointment in global central bank actions (Europe, Japan, China)

While the picture painted above seems saturated in negativity, it’s not all doom and gloom. There are assuredly some more positive factors to consider:

  • Global policy remains accommodative, particularly in Europe and Japan
  • U.S. interest rates remain low by historic standards
  • Job creation in the U.S. remains positive
  • U.S. bank lending continues to grow at moderate pace
  • U.S. services (majority of U.S. economic activity) continue to show moderate growth
  • Looser U.S. fiscal policy should marginally contribute toward GDP growth in 2016 (estimated)
  • Economic growth in Europe appears stable, albeit tepid
  • Direct impact of emerging market weakness to U.S. economy is less than 5% of GDP

In terms of how we address this in our portfolios, we continue to monitor these conditions and are assessing the risks and opportunities. Within our strategic portfolios, such as our Destinations mutual fund program, we have marginally reduced stated risk within more conservative portfolios while maintaining a slight overweight to risk in more aggressive portfolios. Following the trend of the last several years, we have trimmed exposure to riskier segments, such as credit within fixed income and small cap within equities. Tactical portfolios entered the year with neutral to slightly-positive beta on near-term concerns of high valuations and China.

The S&P 500 has dominated all asset classes in recent years.  A potential end to that reign should not cause alarm, but instead refocus attention to the long-term benefits of diversification and why there are reasons to own strategies which do not just act like the S&P 500.

In general, investors should not panic but rather continue to evaluate their risk tolerance and suitability, as well as engage in consistent dialogue with their financial advisors. The turn of the calendar might just be the ideal time to review those needs.

[1] Theoretical benchmark representing 60% equity (42% Russell 3000 Index, 18% MSCI AC ex-US), and 40% fixed income (38% Barclay Aggregate and 2% T-Bill)

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 – The Rate Hike Has Finally Come

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded December 17, 2015), Bill recaps the Fed’s official decision to raise interest rates:

What we like: It’s finally over! After months and months of conversation and debate, investors can breathe a sigh of relief and now move forward; Yellen was reassuring in describing the stability of the economy and it’s resilience to the increased interest rates

What we don’t like: Notable industry thinkers are questioning the decision and timing of the rate hike; they question the overall resiliency Yellen seems so confident in

What we’re doing about it: Paying close attention to economic data released over the next quarter; interpreting how well the economy is growing and how much financial stress may be present; if commodities and manufacturing remain weak, than perhaps the Fed raised rates too soon

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.