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.

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: On the eve of Donald Trump’s inauguration…

Goins_PodcastAndrew Goins, Investment Manager

On this week’s podcast (recorded January 19, 2017), Andrew discusses Donald Trump’s impact on the markets over the last few months and how he’s influenced our outlook going forward. Quick hits:

  • After an initial reaction of fear, Trump’s victory quickly brought about a new hope for U.S. economic growth.
  • But, as we are all aware, markets move based on expectations, and have history of getting ahead of itself.
  • We are confident that higher volatility across markets and interest rates will likely continue as investors cling to Trump’s every word.
  • The currencies of India, Mexico, and Russia are all undervalued to the tune of 25-45%.
  • Despite all of these uncertainties and higher expected volatility, we believe risk assets will continue to outperform, but the move won’t be linear.

For Andrew’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.

December 2016 market and economic review and outlook


magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager

The dramatic market shifts in November were not for the fainthearted. Risk assets ended the month mixed with domestic assets posting strong positive returns and international assets generally negative. November began with risk assets in a steady downtrend but abruptly reversed in the aftermath of the Trump victory. Markets surged with the anticipation of Trump policy initiatives such as increased infrastructure spending, tax reform and less regulation. Expectations of increased economic growth coupled with rising commodity prices heightened fears of higher inflation and continue to fuel speculation of a Fed rate hike during the fourth quarter. As political and central bank policy continue to unfold, we expect heightened market volatility to continue. 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.

Our macro outlook is biased in favor of the positives and recession is not our base case:

  • 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, and infrastructure spending, as well as a more benign regulatory environment.
  • Global monetary policy remains accommodative: The Fed’s approach to tightening monetary policy has been patient. The Bank of Japan and the ECB remain supportive, and the Bank of England may need to join in response to the Brexit vote.
  • Stable U.S. growth and tame inflation: U.S. economic growth has been modest but steady, and the reflationary policies discussed above should boost economic activity. Wage growth, a big driver of inflation, has remained in check.
  • Constructive backdrop for U.S. consumer: The U.S. consumer should continue to benefit from lower oil prices and a stronger labor market.

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

  • Risk of policy mistake: 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. Should inflation expectations 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, bringing the credibility of central banks into question.
  • Slower global growth: Economic growth outside the U.S. is weaker.
  • Risk of more protectionist trade policies: The new administration may impose tariffs and/or renegotiate trade agreements.

The technical backdrop of the market has improved, as have credit conditions, helped by the favorable macroeconomic environment. We have also seen some reacceleration in earnings growth. So far Trump’s policies are being seen as pro‐growth, and investor confidence has improved.

We expect higher volatility to continue as we digest the actions of central banks and the onset of the Trump administration; 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.

A PDF version of Amy’s commentary is available to download from 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.

Investment Odyssey

Dan WilliamsDan Williams, CFA, CFP, Investment Analyst

In Homer’s Odyssey there is a memorable section where Odysseus and his crew must shutterstock_369235274sail past the island of the lovely Sirens. He has been warned to plug his crew’s ears with wax so that they will not be susceptible to the Sirens’ call. However, wishing to hear the Sirens’ calls for himself, he orders his men to tie him to the mast of the ship and ignore his future orders until they are clear of the island.

The need to stay the course and to ignore distractions are relevant to many facets of life, but I find special meaning related to long-term investing. When people think of investment risk they normally focus on the volatility seen in recent investment returns. However, the returns of a random month, quarter or even a year has an overrated impact on an account’s growth over a 10+ year horizon.

Tolerance for this volatility/risk typically has more to do with investor psychological make-up than the mathematical impact of these short-term returns on much longer term account performance. For me, this volatility and other market noise represent the Sirens that threaten to take investors off course. Two investors who are the same in every other way and invest in the same portfolio, will have a different investment experience based on how often they look at their account and how they feel about what they see.

In other words, similar to Odysseus’ crew, the journey can be made less stressful and easier by turning off the noise. While feelings and emotions are important considerations, as lost sleep and stress meaningfully impact a person’s well-being, a better course is set by focusing on more objective investment risks. Among the most relevant objective risks for investors is shortfall risk.

Shortfall risk

Most investors invest to fulfill a future goal/need years in the future. Shortfall risk is simply the risk that the money allocated and invested to this future goal/need proves to be inadequate to pay for it when the time comes. This risk is very real and goes well beyond how an investor feels about it. If an investor needs $100,000 a year in retirement but finds that due to insufficient account growth he or she can only sustainably take out $80,000 a year from his or her portfolio at retirement, the math will simply not work. No solace is offered by the smooth but inadequate investment journey of an overly conservative allocation when the investment goal is not achieved.

Addressing volatility

The challenge is often to achieve the long-term returns that can meet account balance requirements, volatility must be taken on. While Odysseus could have taken a long detour around the island of the lovey Sirens, his goal of getting home in a timely fashion would not have been met (and for those who know the story, he had a deadline). Similarly, an investor could ensure a very smooth investment journey by investing in a portfolio dominated by short-term bonds, but could find investment account growth inadequate to meet the goal of the investment. The good news is that if investors can find a way to plug their ears to the noise, they can get the longer-term returns they need and minimize the stress of the volatility along the way.

Multi-asset class goals-based investing is one way to have the investor take a longer view on his or her investing to see past the present sirens of volatility and recent returns to the goal at the end of the investing horizon. Without the ability to take the long-run prospective, we are like Odysseus hearing the Sirens call. Without an advisor to keep the ship on course, the journey is potentially doomed. Investing is only successful if the investor can stay the course and stay invested. The importance of keeping the investor from letting the heart rule the head is one of the most important roles of the investment advisor.

Brinker Capital understands that investing for the long-term can be daunting. That’s why 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.

Investment Insights Podcast: Increased Volatility Ahead of Election Day

Hart_Podcast_338x284Chris Hart, Senior Vice President

On this week’s podcast (recorded October 28, 2016), Chris is back with a market update as volatility has picked up in the past week with the election right around the corner.

Quick hits:

  • Over the past week, small and midcap stocks have been especially weak and have been underperforming for the past few weeks.
  • Yields have risen with 10-Year Treasuries under pressure over concerns the Fed is moving closer to a tightening in December.
  • While it’s still early, third quarter earnings have done okay relative to expectations (about 25% of S&P 500 companies reporting).
  • Since 1928, the S&P 500 has predicted 19 of the past 22 presidential election outcomes. If stocks are higher in the three-month period before the election, the incumbent party has generally won and vice versa.*
  • Volatility should continue to trend higher, but the market is not showing signs of a top. Interest rates and inflation remain low.

For the rest of Chris’s insight, click here to listen to the audio recording.

*Source: Strategas Research Partners LLC

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: 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.

Nix the Mixed Emotions About Retirement

cook_headshotPaul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

The future holds many uncertainties, leaving us to often have mixed feelings when thinking about retirement. Even if you feel more than ready, on an emotional level, to move to the next phase of your life, you may have some uncertainty about whether you will be able to maintain the lifestyle you wish.

Last week in Roddy Marino’s Eight Signs You Are Ready to Retire, he shared some useful statistics from an Ameriprise Financial survey that address this notion of mixed emotion. Close to 50% of respondents felt they were ready to retire, but admitted that there was still some concern. 21% admitted more bluntly that they felt uncertain or not ready at all. Suffice it to say that a large portion, about 63%, of newly retired boomers said they felt stressed about retirement leading up to the decision.[1]

We’ve talked before about how your physical health can impact your retirement, but let’s take another approach and look at six financial certainties that may help to lower your stress and avoid some of the mixed emotions about retirement.

  1. You will need cash. Throughout your retirement journey, you will need quick access to your money. Typically, you will need enough liquidity to cover two years’ worth of anticipated living expenses.
  1. The quicker you spend, the shorter it will last. Your predictable expenses may total up to, for example, $2,000 a month. But how many years could you go on spending $24,000? The impact of spending on your portfolio becomes clear once you determine a spend-rate. For example, if you had $500,000 in a retirement savings account and withdrew $2,000 a month, the portfolio would last 20-29 years. A $500 reduction in spending, however, could result in 9-15 more years of longevity for the portfolio.
  1. The money not needed to cover expenses must be invested…wisely. While you can’t control the markets, you should feel confident that your investments are managed with skill and integrity. Choose an investment advisor with whom you have a trust and have a high level of confidence.
  1. Eventually, you will run out of cash and need more. One of the tricky parts of managing your money in retirement involves knowing how to create an income stream from your portfolio. You need to figure out which assets to take distributions from, and when. To ensure that each of your assets performs optimally, you must conduct a careful technical analysis and evaluate moving market trends. If you are like most retirees, you could benefit from having an expert perform this service for you so that you can have confidence that you are benefiting from all possible market and tax advantages.
  1. You’ll make more confident decisions if you know how your investment performance and expenses measure against your goals. Throughout your retirement journey, it is helpful to know where you stand against your goals. If your overall goal is to outlive your savings, then you should have a system in place that helps you contextualize your spending and its relative impact on long-term goals.
  1. Markets are volatile. When markets fluctuate, many investors feel like all semblance of control over their financial future is lost. Having a well-diversified portfolio may help to smooth the ride and reduce some of the emotions of investing.

If you approach retirement by developing an income solution that addresses each of these known facts, you can feel as if you are on more solid ground to enjoy your retirement.

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.


[1] Ameriprise Study: First Wave of Baby Boomers Say Health and Emotional Preparation are Keys to a Successful Retirement, February 3, 2015

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.