May 2017 market and economic review and outlook

lowman

Leigh Lowman, Investment Manager

After drifting lower for most of the month, risk assets rallied at the end of April and finished in positive territory. The French election spurred a rebound in markets when both Republican and Socialist candidates were edged out in favor of centralist candidate, Emmanuel Macron. The election has yet to go into the second round but political uncertainty has decreased as the French voting population appears to be favoring a more moderate political vision. On the domestic side, markets were relatively quiet. Data continued to lean positive with stablizing inflation expectations, continued growth in home prices and elevated consumer sentiment.  Business confidence continued to surge as expectations remain high on the Trump administration’s economic plan but much uncertainty still remains on the administration’s ability to deliver on its promised fiscal growth policies.

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The S&P 500 Index was up 1.0%.  Cyclical sectors outperformed more defensive sectors. Technology (+2.5%) posted the largest gain and leads year to date by a wide margin.  Consumer discretionary (+2.4%) and industrials (1.8%) also posted strong returns for the month.  Energy continued to lag and is down -9.4% year to date.  Both telecom (-3.3%) and financials (-0.8%) were negative for the month. Growth outperformed value for the fourth consecutive month and small cap led both large and mid cap, a reversal from last month.

Developed international equity was up 2.6% for the month, outperforming domestic equities. Positive news surrounding the French election boosted markets but problems remained in other areas within the European Union. UK economic data exhibited signs of weakening as Brexit continues to loom over the economy and debt levels of both Italy and Greece remain problematic. Economic data in Japan showed signs of improvement during the month but growth continues to move at a slow pace.  Emerging markets performed in line with developed markets. The region posted positive returns of 2.2%, fueled by strong growth in China and dissipating fears of US protectionism.

The Bloomberg Barclays US Aggregate Index was up 0.8% for the month with all sectors posting positive returns. The 10 year Treasury yield contracted 10 basis points, ending the month at 2.3%. After slightly widening last month, high yield spreads narrowed 12 basis points. Municipal bonds performed in line with taxable bonds, up 0.7%.  Increased demand and limited supply served as tailwinds for the asset class.

We remain positive on risk assets over the intermediate-term, although we acknowledge we are in the later innings of the bull market and the second half of the business cycle. While our macro outlook is biased in favor of the positives and recession is not our base case, especially considering the potential of reflationary policies from the new administration, the risks must not be ignored.

We find a number of factors supportive of the economy and markets over the near term.

  • Reflationary fiscal policies: With the new administration and an all-Republican government, we expect fiscal policy expansion in 2017, including tax cuts, repatriation of foreign sourced profits, increased infrastructure and defense spending, and a more benign regulatory environment.
  • Global growth improving: U.S. economic growth remains moderate and there are signs that growth outside of the U.S., in both developed and emerging markets, is improving.
  • Business confidence has increased: Measures like CEO Confidence and NFIB Small Business Optimism have spiked since the election. This typically leads to additional project spending and hiring, which should boost growth.
  • Global monetary policy remains accommodative: The Federal Reserve is taking a careful approach to monetary policy normalization. ECB and Bank of Japan balance sheets expanded in 2016 and central banks remain supportive of growth.

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

  • Administration unknowns: While the upcoming administration’s policies are currently being viewed favorably, uncertainties remain. The market may be too optimistic that all of the pro-growth policies anticipated will come to fruition. The Administration has quickly shifted from healthcare to tax reform legislation. We are unsure how Trump’s trade policies will develop, and there is the possibility for geopolitical missteps.
  • Risk of policy mistake: The Federal Reserve has begun to slowly normalize monetary policy, but the future path of rates is still unclear. Should inflation move significantly higher, there is also the risk that the Fed falls behind the curve. The ECB and the Bank of Japan could also disappoint market participants by tapering policy accommodation too early.

The technical backdrop of the market is favorable, credit conditions are supportive, and we have started to see some acceleration in global economic growth. So far Trump’s policies are being seen as pro-growth, and investor and business confidence has improved. We expect higher volatility to continue as we digest the onset of new policies under the Trump administration and the actions of central banks, but our view on risk assets remains positive over the intermediate term. Higher volatility can lead 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. 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. S&P 500: An index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe. Companies included in the Index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor’s. Bloomberg Barclays U.S. Aggregate: A market capitalization-weighted index, maintained by Bloomberg Barclays, and is often used to represent investment grade bonds being traded in United States.

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.

Investment Insights Podcast – Japan: Sunset on the Horizon?

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

On this week’s podcast (recorded April 29, 2016), Stuart puts the focus on Japan and their struggling economy especially on the current political climate and its economic impact.

Why talk about Japan?

  • It’s the third largest economy in the world.
  • It’s one of the world’s leading lenders to the rest of the world, including the U.S.
  • Political fallout and economic downside loom if monetary easing policy is not accompanied with fiscal progress.

What’s the latest?

  • On April 27, the Bank of Japan decided not to add to currently high quantitative easing, greatly disappointing the markets.
  • The Japanese Yen appreciated over 2% (versus the U.S. dollar), that’s a negative given that two-thirds of the equity market is based towards overseas earnings.

How did Japan get here?

  • Back in 2013, Shinzo Abe inspired hope to reinvigorate the economy through the three arrows: monetary policy, fiscal stimulus, and structural reform.
  • The reality is there has been little-to-no follow through on fiscal policy or structural reform.
  • Bank of Japan has created a massive QE program, owning one out of every three long-duration government bonds.

Japan_Chart_1

So, did the quantitative easing measures work?

  • QE helped asset prices, but did not reset inflationary expectations nor economic growth (GDP around 1%).
  • Japanese corporations aren’t investing back into Japan, but rather overseas.
  • Negative interest rates have resulted in a deceleration in bank lending.

That’s not great, but what does that mean exactly?

  • Failure in Japan could also have implications for global markets.
  • Despite stagnant growth for parts of the last three decades, Japan remains the third largest economy and second largest equity market.
  • Japan is also one of the largest holders of U.S. Treasuries.

Shoot me straight here, has Japan entered into the “sunset” phase?

  • It appears likely that Japan still has liquidity to muddle through its problems for now, but one cannot rule out a more negative scenario with the latest inaction and failure to improve the economy.
  • Fiscal stimulus could come in light of the recent earthquake, but progress on tax code reform and increased spending would provide longer-lasting relief.
  • One potentially negative scenario could come in July if a larger-than-expected victory for the opposition happens–this could lead to general elections and the departure of Abe causing policy uncertainty and higher volatility.

Please click here to listen to the full 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, a Registered Investment Advisor.

April 2016 Monthly Market And Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

After an extremely volatile quarter, the broad equity market indexes ended just about where they started. Risk assets began the year under heavy pressure, with the S&P 500 Index declining more than -10% to a 22-month low on February 11. Concerns over the global growth outlook and the impact of further weakness in crude oil prices weighed on investors, and investor sentiment hit levels of extreme pessimism. Then we experienced a major reversal beginning on February 12, helped by a rebound in oil prices after Saudi Arabia and Russia agreed to freeze production, and more dovish comments by the Federal Reserve. Expectations regarding the pace of additional rate hikes by the Fed have been tempered from where they started the year.

All U.S. equity sectors ended the quarter in positive territory except for healthcare and financials. Dividend paying stocks significantly outperformed, resulting in a strong quarter for both the telecom and utilities sectors, and value indexes overall. From a market capitalization perspective, mid-caps outperformed both large and small caps, helped by the strong performance of REITs, another yield-oriented asset class.

Developed international equity markets lagged U.S. equity markets in the first quarter despite benefiting from a weaker U.S. dollar. Japan and Europe were particularly weak despite additional easing moves by their central banks, while the commodity-sensitive countries, such as Canada and Australia were positive for the quarter. Emerging markets outperformed U.S. equity markets for the quarter despite declines in China and India. Brazil was the strongest performer, helped by a rebound in the currency, expectations for political change, and the bounce in commodity prices.

ECBBonds outperformed stocks during the quarter, and did not even decline during the risk-on rally. Additional easing from the European Central Bank and a negative interest rate policy in Japan prevented U.S. bond yields from moving higher.

All fixed income sectors were positive for the quarter, led by corporate credit, which benefited from meaningful spread tightening, and TIPS, which benefited from their longer duration. Municipal bonds delivered positive returns, but lagged taxable fixed income.

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: Despite the Federal Reserve beginning to normalize monetary policy with a first rate hike in December, their approach 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, and China is likely going to require additional support.
  • Stable U.S. growth and tame inflation: U.S. economic growth has been modest but steady. 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.
  • Solid 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.
  • Slower global growth: Economic growth outside the U.S. is decidedly weaker, and a significant slowdown in China is 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.
  • Further weakness in credit markets: While high yield credit spreads have tightened from February’s wide levels, further weakness would signal concern regarding risk assets more broadly.

The technical backdrop of the market has improved, as have credit conditions, while the macroeconomic environment remains 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; however, our view on risk assets 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.

March 2016 Monthly Market And Economic Outlook

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

February was a fragmented month. Equity markets were down mid- to high-single-digits for the first half of the month but rebounded off the February 11 bottom to end the month relatively flat. While fears of slower growth in U.S. and China as well as volatile oil prices continued to serve as negative catalysts to equity markets in the beginning of the month, positive reports of strong consumer spending and  employment as well as signs of stabilization in oil prices helped dissipate fears. In response, the market rallied during the second half of the month, finishing in neutral territory.

The S&P 500 Index ended slightly negative with a return of -0.1% for February. Sector performance was mixed with more defensive sectors – telecom, utilities and consumer staples – posting positive returns. Underperformance of health care and technology sectors caused growth to lag value for the month. Small caps continued to lag large caps, and micro caps had a particularly challenging month, underperforming all market caps.

International equity markets lagged U.S. markets in both local and in U.S. dollar terms for the month. Weak economic data coupled with concerns over the effectiveness of monetary policy response in both Europe and Japan caused investor confidence to drop, negatively impacting developed international markets. Emerging markets were relatively flat on the month, remaining ahead of developed international markets as these export heavy countries benefited from more stable currencies and an upturn in oil prices.

U.S. Treasury yields continued to fall in the beginning of the month, bottoming at 1.66%, before bouncing back to end the month at 1.74% as equities rebounded. The yield curve marginally flattened during the month. All investment grade sectors were positive for the month and municipal bonds also posted a small gain. High yield credit gained 0.6% as spreads contracted 113 basis points after reaching a high of 839 basis points on February 11th. We remain positive on this asset class due to the underlying fundamentals and attractive absolute yields.

We remain positive on risk assets over the intermediate-term as we believe we remain in 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. GDP estimates are running at 2.2% for the first quarter (Source: Federal Reserve Bank of Atlanta). 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, while off the lows, remain below the Fed’s target.
  • Washington: The new budget fiscal policy is poised to become modestly accommodative, helping offset more restrictive monetary policy.vola

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 remain wide, and weakness is widespread.
  • Another downturn in commodity prices: Oil prices have rebounded off of the recent lows; however, another significant leg down in prices could become destabilizing.

On the balance, the technical backdrop of the market remains on the weaker side, but valuations are at more neutral levels. 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 tilts positive over the near term. Higher volatility has led to attractive pockets of opportunity that as active managers we can take advantage of.

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.

Investment Insights Podcast – Jolting The Economy

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded March 10, 2016), Bill highlights the latest news out of Europe and China:

What we like: Mario Draghi and the ECB announced a number of pro-stimulus policies; banks supportive in lending to businesses; more quantitative easing supports sovereign debt markets; Draghi trying to be the backstop to support the economy; China’s Five-Year Plan focused on stimulating economy

What we don’t like: Market is realizing that pure monetary stimulus is not enough; there is a global oversupply and printing more money or having markets lend more money isn’t enough to offset; investors are hearing the rhetoric but looking for results

What we’re doing about it: Keeping the same mindset that there will not be a recession; looking for opportunities within high-yield and energy

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.

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

Investment Insights Podcast – The Good and Bad of Trading on Emotion

Raupp_Podcast_GraphicJeff Raupp, CFA, Senior Investment Manager

On this week’s podcast (recorded January 26, 2016), Jeff looks at the opportunities created via emotional selling while monitoring the negative factors at work in the economy:

  • Leading reasons for weakness in the marketplace continue to be falling oil prices and China’s slowing growth
  • Strength of the global economy is creating uncertainty.
  • When markets are volatile, it’s important to evaluate where markets may have overreacted and opportunity has been created.
  • Emotional trading seems to have generated attractive entry points into the market, but unique to an investor’s risk tolerance and time horizon.
  • Positives in the market include tame inflation and accommodative monetary policy; negatives include overtightening by the Federal Reserve.

For Jeff’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 – 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.

In the Conversation: Rate Hike on The Horizon

Tom WilsonTom Wilson, Managing Director, Wealth Advisory &
Senior Investment Manager

Just a few months ago, it seemed unlikely that the Federal Reserve would raise interest rates. However, on the precipice of the December 16 meeting, the consensus opinion has shifted to the Fed likely to raise interest rates when they conclude their two-day meeting. Investors will be looking closely at the comments coming out of the meeting.

We expect the Fed to highlight the positive aspects of U.S. employment, which has been one of their two mandates. This can provide them the justification for increasing interest rates from today’s exceptional levels. Their second mandate is an inflation target that supports price stability and economic growth. On this point, the Fed will likely note that the economy is running below their 2% target and thus could make dovish comments on the prospect of raising rates in the future.

Investors will also be looking to see how the Fed comments on China’s economy, the drop in oil prices, and the decline in global equity markets. More specifically, the market would be looking for insight on how much the Fed will weigh this information when setting monetary policy here in the U.S.

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.