Investment Insights Podcast: A quick review of the markets last week and our outlook


Leigh Lowman
, Investment Manager

On this week’s podcast (recorded March 24, 2017), Leigh provides a quick review of the markets last week and reaffirms our outlook.

Quick hits:

  • After notably strong performance for the first two months of the year, risk assets sold off last week with the S&P 500 declining over 1% on Tuesday, the first 1% drop since October 2016.
  • Month to date through Thursday, March 23rd, the S&P 500 is down -0.6% and areas of the market are beginning to show signs of consolidation.
  • Despite the recent market pullback, we remain positive on risk assets over the intermediate term.
  • We expect higher volatility to continue as policies under the new administration and actions of central banks continue to unfold.

For Leigh’s full insights, 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: A quick review of January markets

Leigh Lowman, Investment Manager

On this week’s podcast (recorded February 10, 2017), Leigh provides a review of January markets. Quick hits:

  • Markets were overall off to a good start in 2017 as risk assets posted modest gains for the month.
  • The S&P 500 was up 1.9% for the month.
  • International equities were also a positive as economic data in the European Union pointed to signs of a modest recovery.
  • Fixed income ended the month slightly positive.
  • Overall, we remain positive on risk assets over the intermediate term as we find a number of factors currently supportive of the economy and markets.

For Leigh’s full insights, 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.

The road to interest rate normalization

lowmanLeigh Lowman, Investment Manager

“Lower for longer”; the motto heard repeatedly since the 2008 financial crisis may soon be irrelevant as interest rates have begun the much anticipated path of normalization. We believe interest rates are biased higher in the longer term as economic data leans positive, giving the green light for the Fed to resume its interest rate normalization efforts. As shown in the chart below, the recent December rate increase is likely the first in a series of hikes to occur over the next few years. However, the process of longer term rates moving higher will likely be prolonged and characterized in fits and starts, rather than linear, as the market adapts to the new normal.

rate_chart_1-5-17

Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. U.S. data are as of November 30, 2016. Market expectations are the federal funds rates priced into the fed futures market as of the date of the September 2016 FOMC meeting. *Forecasts of 17 Federal Open Market Committee (FOMC) participants are median estimates. **Last futures market expectation is for August 2019 due to data availability.

Many positive factors are currently present in the economy that point to a move toward interest rate normalization, including:

Stable U.S. economic growth – U.S. economic growth has been modest but steady.  The onset of the Trump administration will likely further stimulate the economy through reflationary fiscal policies including tax cuts, infrastructure spending and a more benign regulatory environment.

Supportive credit environment – Since the February 11, 2016 market bottom, high yield credit spreads contracted 431 basis points with most sector credit spreads now at or near one year market lows. Commodity prices have also stabilized.

Inflation expectations – Historically there has been a strong positive correlation between interest rates and inflation. Many of the anticipated policies of the Trump administration are inherently inflationary, and inflation expectations have increased accordingly. In addition, we believe we are in the second half of the business cycle, typically characterized by wage growth and increased capital expenditures, both of which eventually translate into higher prices.

Unemployment levels – The labor market has become stronger and is nearing full employment. Unemployment has dropped to a level last seen in 2007.

What does this mean for fixed income?

While a rising rate environment may suggest flat to even negative returns for some areas of fixed income, it still provides stability in the portfolio when equities sell off.  Historically, fixed income has had substantially less drawdown than equities. For example shown in the charts below, in the two days following the Brexit decision on June 23, 2016, equities sold off over 4% and fixed income was up sharply. Likewise fixed income provided an attractive safe haven during the market correction in the beginning of 2016. In an environment of rising rates, we expect fixed income to provide a good counter to equity volatility.

rate_chart_2_1-5-17

Source: FactSet

Although uncertainty remains on the timing and trajectory of interest rates changes, we believe interest rates are poised higher for the longer term. Brinker Capital is committed to helping investors navigate through a rising rate environment. All of our products are based on a multi-asset class investment philosophy, a proven method of achieving meaningful diversification

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.