Vlog – Quarter End Q&A: 4Q2018

Brinker Capital Global Investment Strategist, Tim Holland, CFA, asks and answers those questions we think will be top of mind for clients as they open their quarterly statements and think back on the quarter that was:

  1. Why did US equities correct so sharply in 4Q2018?
  2. Why was the market so volatile in 4Q2018?
  3. Is the bull market over?

 -Holland_2_500px

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.

Top blog posts of 2018

It’s time to close out the year with our top five blog posts from 2018. From our perspectives on market volatility to weekly podcasts and even a recap of the mid-term elections, these are the best of 2018. Enjoy!

Crosby_2015-150x150Dr. Daniel CrosbyExecutive Director, The Center for Outcomes & Founder, Nocturne Capital

The do’s and don’ts of market volatility

You will never regret your vacation

A tomorrow more certain than today

Holland_F_150x150

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

Investment Insights Podcast: What’s roiling the market, and where do we go from here?

 

Raupp_F_150x150

Jeff Raupp, CFA, Chief Investment Officer

A quick take on the mid-term elections

 

 

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.

Drivers of recent market volatility

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

 

Throughout 2018, Brinker Capital has been optimistic about both the US economy and US stocks, however, recent market weakness and volatility beg two questions:

  • Is Brinker Capital still optimistic on the US economy and US equities?
  • If so, why?

To answer both questions, we remain optimistic on the US economy and markets into 2019. We are overweight US and emerging market equities and conservatively positioned within fixed income, as we continue to see interest rates biased higher. Additionally, we remain optimistic as the fundamental data continue to point us in that direction.

More specifically,

  • The US economy should grow north of 3% in 2018 and about 2.5% in 2019.  We see very little risk of a recession in the new year.
  • US corporate profits should grow north of 20% in 2018 and mid to high single digits in 2019.  Continued growth in earnings is important for a few reasons, including the fact that we haven’t had an economic recession without an earnings recession (e.g. when US corporate profits decline year-on-year) and that as earnings move higher and the market trades down, stocks become more attractively valued.
  • None of the classic indicators of a recession, including an inverted yield curve, restrictive monetary policy, or a rolling over of leading economic indicators are present today.  In fact, one could argue that the US economy is doing exceptionally well, with unemployment below 4%, GDP growth above 3% and inflation anchored near 2%. Also, the recent dramatic drop in the price of oil will translate into lower prices at the pump for US drivers, a powerful economic tailwind when considering our economy is 70% consumer driven.
  • Pivoting back to the US equities, not only is the market attractively valued at below 14x forward earnings, 2018 should see US companies pay a record amount of dividends and buy in a record amount of their own shares. Both are important pillars of support for stocks.
  • Many measures of Investor Sentiment are at or close to all-time high levels of pessimism. This indicated that many investors have capitulated and return expectations moving forward are very low. In this environment, news that is even incrementally positive can have a substantial upside impact on markets.

So, if the fundamental data is so robust, why has the market been so volatile and biased lower? We would point to two primary concerns. First, the US Federal Reserve (Fed) is pushing interest rates too high too quickly, which will ultimately lead to a slowing of corporate and consumer spending and a recession. Second, the US and China won’t be able to resolve their differences on trade, with escalating tariffs ultimately pushing the Chinese economy into a recession, which will pull down global growth and possibly cause a recession here at home.

We believe both risks are real and meaningful, however, we also continue to believe that the Fed will move quite slowly on interest rates next year and that cooler heads will prevail on trade.  In fact, the Fed has made it quite clear they will be data dependent when it comes to interest rate policy in 2019 and the US and China recently agreed not to impose any additional tariffs during a 90-day negotiating period.  We expect good news on the trade front sooner rather than later.

Market drawdowns are never pleasant, but they do happen.  And when markets sell off it is important to keep one’s focus on the fundamentals and away from the media’s bias toward fear-mongering and frightening headlines.  Today, the fundamental underpinnings of both the economy and market remain robust and as a result, we remain optimistic on both into 2019.

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: Unpleasant, yes; deterioration in fundamentals, no

Amy Magnotta, CFASenior Vice President, Brinker Capital

On this week’s podcast (recorded October 26, 2018), Amy discusses the recent market volatility.

Quick hits:

  • The S&P 500 Index is down -7.6% from its September high, but has not yet reached official correction status.
  • Third quarter earnings have been stellar for the most part.
  • Investors have a number of concerns that are weighing on markets.
  • We continue to believe that the positives outweigh the risks, and we do not see that a recession is imminent.

For Amy’s full insights, click here to listen to the audio recording.

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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. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.