Bell bottoms we can dig. But a V bottom we can REALLY dig.

Holland_F_150x150Tim Holland, CFA, Senior Vice President, Global Investment Strategist

We can’t comprehend why the ‘70s remain such a maligned decade. Sure, there was Watergate and Stagflation and a host of other national ills, but there was also disco, Welcome Back Kotter, and bell bottoms. And as we wait on the overdue return of bell bottoms to a position of fashion prominence, our attention turns to a more important, and potentially more timely, bottom – a V bottom in the stock market.

As discussed in prior blog posts, one prism through which investors can view both the market and capital allocation is technical analysis, which said simply, is the effort to ascertain future return patterns for risk assets based on prior return patterns. As such, technicians pay close attention to factors such as price momentum and moving averages, including whether the security or index of interest is trading above or below said average, which could be the point of price support or price resistance. Yes, technical analysis can be confusing!

So, when the S&P 500 Index sold off nearly 20% last year (see black line in chart below), many technicians predicted grim days ahead for the market as the benchmark for US equities was both trading meaningfully below its 50 day and 200 day moving averages (see green and red lines, respectively, below) and markets rarely experience a V bottom – a sharp correction followed by a short rebound.

V bottom

In technical parlance, the market needed time to repair the damage done to it during the late 2018 pullback. Well, with the S&P 500 rallying 19% off its December low, we may just be in the midst of that often discussed, but seldom seen V bottom. And, while Brinker Capital does consider short-term technical factors such as momentum when making our asset allocation decisions, see the Brinker Capital Market Barometer below, we believe it is economic fundamentals, interest rates, and earnings that drive equities over the longer term, and on those fronts, we still see more good news than bad.

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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.

Chart source: FactSet

February 2018 market and economic outlook

Lowman_FLeigh Lowman, CFA, Investment Manager

Despite the pick-up in volatility at the end of January, risk assets continued their upward ascent throughout the month. Expectations surrounding the implementation of the newly passed tax reform bill and the weakening US dollar served as positive catalysts for the month. Macroeconomic data was mixed; fourth quarter real GDP growth came in slightly below expectations but manufacturing activity accelerated and the US jobs report was positive. Although we have seen initial signs of rising inflation, levels remain subdued as low unemployment has yet to translate into meaningful wage growth. We expect the Federal Reserve (Fed) to remain on track with interest rate normalization and the positive, albeit choppy, market momentum we have seen to date indicates that markets can likely withstand an additional Fed rate hike in March.

The S&P 500 Index was up 5.7% for the month with cyclicals outperforming defensive sectors. Consumer discretionary (+9.3%) led while tax cuts and a solid job market served as positive catalysts. Information technology (+7.6%) and financials (+6.5%) also posted strong returns for the month. Utilities (-3.1%) and REITs (-2.0%) were down as traditional bond proxy sectors experienced headwinds amidst rising interest rates. Growth outperformed value and large-cap outperformed both mid-cap and small-cap equities.

Developed international equities (+5.0%) performed in line with domestic equities. Fundamentals within the Eurozone continued to improve and sentiment is high. The focus remains on European Central Bank policy and how the reduction of its quantitative easing purchases will impact markets. Emerging markets were up 8.3%. A weaker dollar and stronger demand for commodities served as tailwinds for both emerging Asia and Latin America regions.

Feb. 2018 Market Outlook

The Bloomberg Barclays US Aggregate Index was down -1.2% for the month. Interest rates surged with 10-year Treasury yields increasing 31 basis points, ending the month at 2.7%. Tightening monetary policy and improving US growth expectations will likely continue to put upward pressure on the long end of the yield curve. High yield was the only sector to post positive returns in January, as credit spreads continued to grind tighter. Like taxable bonds, municipals were negative for the month.

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 this cycle has been longer in duration compared to history, the recovery we have experienced has been muted, supported by the extended recovery period. While our macro outlook is biased in favor of the positives, the risks must not be ignored.

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

  • Pro-growth policies of the Administration: The Trump administration has delivered a new tax plan and a more benign regulatory environment. We could see additional government spending on infrastructure in 2018.
  • Synchronized global economic growth: Growth in the US has started to accelerate, and growth in both developed international and emerging economies has meaningfully improved. The tax cuts could also help to boost GDP growth in 2018.
  • Improvement in earnings growth: Corporate earnings growth has improved globally and corporate tax reform should further benefit US-based companies.
  • Elevated business sentiment: Measures like CEO Confidence and NFIB Small Business Optimism are at elevated levels. This typically leads to additional project spending and hiring, which should boost growth. The corporate tax cut should also benefit business confidence and lead to increased capital spending.

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

  • Fed tightening: The Fed will continue to tighten monetary policy, with at least three interest rate hikes priced in for 2018. We may see tightening from other global central banks as well.
  • Higher inflation: Current levels of inflation are muted but inflation expectations have ticked higher and the reflationary policies of the Administration could further boost levels. Should inflation move higher, the Fed may shift to a more aggressive tightening stance.
  • Geopolitical risks: Geopolitical risks including trade policies and global challenges could cause short-term market volatility.

Despite the volatility experienced over the last week, the technical backdrop of the market remains favorable, credit conditions are supportive, and global economic growth is accelerating. So far President Trump’s policies are being seen as pro-growth, and business and consumer confidence are elevated. The onset of new policies under the Trump administration and actions of central banks may lead to higher volatility, 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.

Brinker Capital Barometer (as of 1/5/18)

Brinker_Barometer_1-5-18

 

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 US 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 US Aggregate: A market capitalization-weighted index, maintained by Bloomberg Barclays, and is often used to represent investment grade bonds being traded in United States.

 

Teaching Moments: Help Clients Shake the Emotional Hangovers

Sue BerginSue Bergin, President, S Bergin Communications

While the I-make-a-decision-and-forget-about-it approach might have worked for Harry S. Truman, it does not describe the vast majority of today’s investors.

According to our recent Brinker Barometer advisor survey[1], only 22% of advisors clients embrace Truman’s philosophy. The vast majority of clients suffer from emotional hangovers after periods of poor performance. They let the poor investment performance impact future decisions. Sometimes, it is for the better. In fact, 31% of clients made wiser decisions after learning from poor investment performance. Nearly half of the respondents, however, claimed that emotions cloud the investment decision following poor performance.

Bergin_LiveWithDecisions_7.30.14Another recent study, led by a London Business School, sheds light on how advisors can increase satisfaction by helping clients make peace with their decisions. According to the research, acts of closure can help prevent clients from ruminating over missed opportunities. To illustrate the point, researchers simply asked participants to choose a chocolate from a large selection. After the choice had been made, researchers put a transparent lid over the display for some participants but left the display open for others. Participants with the covered tray were more satisfied with their choices (6.30 vs. 4.78 on a 7 point scale) than people who did not have the selection covered after selecting their treat.

While the study was done with chocolate and not portfolio allocations, behavioral finance expert Dr. Daniel Crosby says that it can still provide useful insights on helping clients avoid what Vegas calls, “throwing good money after bad,” and psychology pundits refer to as the “sunk-cost fallacy.”

“Many clients are so averse to loss that they will follow a bad financial decision that resulted in a loss with one or more risky decisions aimed at recouping the money. If you detect that a client is letting emotional residue taint future decisions you should counsel them to consider the poor performance as a lesson learned. This will allow the client to grow from the experience rather than doubling the damage in a fit of excessive emotionality,” Crosby explains.

[1] Brinker Barometer survey, 1Q14. 275 respondents

The views expressed are those of Brinker Capital and are for informational purposes only.

John Coyne on Bloomberg TV

Brinker Capital Vice Chairman, John Coyne, sat down with Deirdre Bolton of Bloomberg TV to discuss the results of the 3Q13 Brinker Barometer Survey.

Click the image below to view his segment.

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Here is an infographic illustrating some of the key results from our Brinker Barometer that John discussed.

Financial Advisors Finally Confident in U.S. Economy, Q3 Brinker Barometer Finds

We have the results of our third quarter 2013 Brinker Barometer® survey, a gauge of financial advisor confidence and sentiment regarding the economy, retirement savings, investing and market performance.

For the full press release, please click here, but in the meantime check out the infographic below for some of the highlights:

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Applying Behavioral Finance To Investment Process Crucial To Financial Advisors, Brinker Barometer Finds

Earlier this week, the results of our latest Brinker Barometer advisor survey were made public. Click here to read the full press release. This particular Barometer had a focus on aspects of behavioral finance and how advisors gauge progress towards meeting their clients’ financial goals.

Check out some of the most interesting survey results in the infographic below!

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Show and Tell: Five Points to Make with Prospects

Sue Bergin@SueBergin

The best storytellers are the ones that have mastered the art of “show, don’t tell.” Their ghost stories, for example, have descriptions of settings and physical manifestations of emotions. Sentences like “it was a scary place,” serve only to punctuate what the reader or listener already concluded.

The same can be said of advisors. Telling someone that you can help them achieve their financial goals does not make nearly as big of an impact as when you show them how.

The following are five areas where it is important to show clients why you are the best choice.

Five Points to Make with Prospects:

  1. How you will organize their financial lives. While most clients don’t come out and admit it, their financial lives are chaotic. They may not know how many assets they truly have and how they can put them all to work to increase purchasing power. The first step for advisors is to show clients the before and after. Explain to them what they currently have now versus what their potential growth may look like. Demonstrate how you will make them feel more in control of their financial lives. It could be something as simple as taking out your iPad and showing them the client portal of wealth management tools.
  2. 6.11.13_Bergin_Show&TellHow you will help them make good investment decisions. The term “good investment decisions” is too opaque to resonate with clients. Instead, walk clients through the process used to create an Investment Policy Statement (IPS). Talk to the client about how an IPS helps to guide future decisions. In the recent Brinker Barometer, we learned that 72% of advisors use a written IPS to help clients make non-emotional investment decisions when the market is in flux. The IPS is tangible proof of a disciplined process that will benefit the client.
  3. What you do to ensure that clients get the best advice and service possible. Marketing-darling phrases like independent, objective and unbiased, fall flat. Instead, describe the process that you go through to ensure that your recommendations are appropriate for the need you are trying to solve.
  4. You have been there, done that. Your experience does not speak for itself. You have to give it a voice. If you just say, “I have been an advisor 22 years,” you miss the opportunity to highlight what you have seen throughout your career. It is more impressive to learn that you have helped others thrive in all market climates than to know that you’ve been at this for a while.
  5. You appreciate their business. It’s easy to say “I value your business,” but to convey that message through action takes a concerted effort. Personal touches such as the just-checking-in phone calls, handwritten notes, and occasional invitations to social events let clients know that their business and their well-being matter to you.

Brinker Capital on Fox Business News

Brinker Capital’s Vice Chairman, John Coyne, joins Lori Rothman on Fox Business News to discuss the changing sentiment of financial advisors and the drive towards alternative investments, like absolute return.

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The Brinker Barometer: Absolute Return Strategies On The Rise

Each quarter, we conduct a survey among financial advisors to gauge their confidence and sentiment regarding the economy, retirement savings, investing and market performance.  In our most recent Brinker Barometer, we asked respondents to reflect on key financial issues, including their clients’ retirement readiness, investing and the nation’s debt problems.

Click here for the official press release

Below is an infographic that sums up the results of the latest Brinker Barometer survey:

Brinker_Barometer_Q4_2012

Understanding Behavioral Style in Developing New Business – Part 1 by Bev Flaxington

Have you ever been taken completely by surprise by a client or prospect? Or have you ever been unable to close a sale because you just couldn’t “get through” to them? Today, investors are being bombarded by so many advisors and business development people – all trying to connect and persuade them to become clients. However, one of the most fundamental ways to connect with prospects is often overlooked by those in a selling role: understanding behavioral styles and adapting one’s communication approach to the people s/he’s trying to persuade.

You may have at one time taken a training course on relationship-building, face-to-face selling skills, or something similar, but the key to understanding the buyer’s perspective necessarily begins with an understanding of behavioral style. This is because behavioral style is the crux of understanding communication style – and true communication is the key to developing great relationships in both your personal and professional life.
So, is it really true that your likelihood of signing new clients could come down to your behavioral style? Research conducted in 1984 and validated again every year since has proven three things: 1) people buy from people with similar behavioral styles to their own, 2) people in a selling type of role tend to gravitate towards people with behavioral styles similar to their own, and 3) if people in a selling or business development type role adapt their behavioral style to that of the prospect, sales increase.

Many advisors, business development and client service personnel have excellent communication skills, but have difficulty in relationships with prospects and clients – and don’t understand why. Something just doesn’t feel right, but they’re not sure how to diagnose the problem or modify their behavior for greater success. Often times, it’s not technique (i.e. the questions asked, presentation or negotiating skills, etc.) but rather a lack of understanding of one’s own behavioral style and motivators, and of knowing that behavioral differences can cause significant communication difficulties that hamstring closing a prospect or an ongoing relationship with clients.
One scientific way to understand behavioral style is through an assessment called DISC (Dominance, Influencing, Steadiness, Compliance). Based upon the work of Carl Jung, the DISC approach was invented by William Moulton Marston, inventor of the lie detector and holder of a Harvard MBA, over 80 years ago. The statistically based profiles show a person’s preferred styles on four scales of behavior – Problems, People, Pace and Procedures:

• Dominance (“D” factor) How one handles problems and challenges
• Influence (“I” factor) How one handles people and influences others
• Steadiness (“S” factor) How one handles work environment, change and pace
• Compliance (“C” factor) How one handles rules and procedures set by others

Depending on our differences in style and approach, we can either get along very easily together (because we’re so much alike!) or we can have significant clashes in our relationship.

A person’s behavioral preferences have everything to do with their communication approach and style. People who operate with very different styles have a difficult time “hearing” one another and communicating effectively. For instance, if I communicate only within my own behavioral comfort zone, I will only be effective with people who are just like me. However, in the corporate environment we are dealing every day with colleagues, prospects, clients and management – all of whom can be very different behaviorally. Not only is communication difficult where there are differences, but often individuals become hostile and conflict-oriented toward one another. Significant time, effort and corporate money is wasted because people are unable to “get along” and work together effectively toward common corporate goals. (Refer to the Brinker blog “Dealing with Difficult Clients” for a complementary discussion of this topic.)

In the next blog, we’ll take a “deeper dive” into behavior style – how you can identify it in your prospects and use this knowledge to improve your selling effectiveness.