Follow the earnings, my friend

Wilson-150-x-150Thomas K.R. Wilson, CFA, external Chief Investment Officer, Wealth Advisory

In meeting with clients this summer, the most frequently asked question was, “Why does the stock market keep going up?” Of course, there are variations of this question which range from “How does the market go up with all the distraction in the U.S. government,” to “This bull market is very long, how can it continue?”

On the surface, it does seem odd that the market continues to move higher. There have been a lot of ‘interesting’ comments coming from the White House, which in a different time may have caused the equity market to decline or at least pause. The average economic expansion since 1900 lasted 47 months, however, the one we are currently in has lasted 98 months, thus far. The economic expansion has contributed to a bull market, which began in March 2009, that is now up close to 260%! In addition, there are a litany of geopolitical issues ranging from riots in Venezuela, an expanding Chinese navy, and North Korean missile tests, which combined are pushing the rise of populism in Europe and the constant Middle East conflict to the backburner. Besides, whatever happened to the old cliché of sell in May and go away? For the year, the S&P 500 is up just over 11%, which includes more than 1.5% appreciation since June 1.

There are a variety of reasons why the U.S. equity market is up, but arguable the most important factor is the earnings of U.S. companies. Earnings have been good this year, very good. And, expectations for earnings for the remainder of the year and into 2018 are solid. This comes on the heels of flat to down earnings from 2014 through the first half of 2016. Furthermore, once earnings are finalized for the second quarter, it looks like operating margins achieved their highest level of any quarter in the last decade!                                                               Follow the earnings my friend

James Carville, campaign strategist for President Bill Clinton, is credited with the phrase “It’s the economy, stupid.” As we think about the gains in U.S. equities this year, perhaps a variation of this phrase, “Follow the earnings, my friend” is more appropriate.

For 30 years, Brinker Capital has served financial advisors and their clients by providing the highest quality investment manager due diligence, asset allocation, portfolio construction and client communication services. Brinker Capital Wealth Advisory works with business owners, individual investors and institutions with assets of at least $2 million. To learn more about the services available through Brinker Capital Wealth Advisor, click here.

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.

Source:  JP Morgan

Finding Comfort Outside the Safety Bubble

Sue BerginSue Bergin

The late author Charles Bukowski once said that, “the shortest distance between two points is often unbearable.” The flight to safety that we have seen over the last few years is proof that this sentiment describes how many feel about investments.

The fixed income market has gotten a $700 billion boost in the last three years, and $300 billion yanked from equity markets.  These are sure signs that investors have found the volatility in markets unbearable.

While the comfort of the safety bubble might calm clients of their market jitters, it isn’t necessarily in their best long-term interest. While fixed income securities are generally “safer” than equity investments, they have a downside.  They may produce returns that do not keep pace with inflation.

safety bubble

There is, however, another option outside of the safety bubble.  By incorporating alternative investment strategies that are less correlated to the markets, clients’ portfolios may be protected from downside risk, yet still capture opportunities for growth.

When clients express an aversion to the equity markets, perhaps it’s time to talk about alternative strategies like absolute return.  Absolute return strategies seek to deliver a positive return regardless of market behavior.  Because they typically have low market correlation, they offer some shelter to the volatility that clients find disturbing.  While not right for everyone, a good absolute return fund can add balance and consistency to a portfolio.