Key U.S. Economic News
  • Nonfarm payroll employment rose by 155,000 in December, in line with expectations.  Upward revisions to prior months were a modest +14,000.  The unemployment rate held steady at 7.8%, as did the broader U-6 measure at 14.4%.  Average hourly earnings edged up, gaining 2.1% on a year-over-year basis.
  • Real GDP rose at an annual rate of +3.1% in the third quarter, up from the second estimate of +2.7%.  GDP estimates are lower for the fourth quarter.
  • The ISM Manufacturing Index moved back into expansion territory in December, at 50.7%.  The new orders component was unchanged at 50.2% while employment gained 4.4 points to 52.7%, moving into expansion territory.  Seven of eighteen industries reported growth while nine reported contraction.
  • The ISM Non-Manufacturing PMI showed the service sector expanded at a faster rate in December, increasing 1.4 points to 56.1%.  The new orders and employment components increased while the business activity component ticked down.  Of the 18 industries, 13 reported growth and five reported contraction.
  • Inflation measures receded in November on lower energy prices.
  • The Consumer Price Index fell -0.3% as gasoline prices fell more than -7%.  The year-over-year change in CPI fell to +1.8%.  Core consumer prices (ex-food and energy) increased +0.1% and are up +1.9% year-over-year.
  • The producer price index fell -0.8% and the year over year increase fell to +1.5%.
  • Industrial production rebounded +1.1% in November after falling in response to Hurricane Sandy.  Industrial production is +2.5% above its year-ago level.  Capacity utilization increased 0.7 percentage points to 78.4%, still 1.9 points below its long-term average.
  • Durable goods orders increased +0.7% in November and are up in six of the last seven months.  Excluding transportation orders increased +1.6%.
  • Retail sales increased +0.3% in November, boosted by gains in electronics and appliance stores.  Early indications are for disappointing holiday sales.
  • Real disposable income increased +0.8% in November and real personal consumption expenditures increased.  As a result the savings rate ticked up to 3.6%.
  • The housing market continued to show signs of strength in November.  Prices have stabilized, supply is at low levels and affordability remains high; however, credit is still tight.  
  • Housing starts fell -3.0% to a SAAR of 861,000.  Single family starts fell -4.1% on the month.  
  • Existing home sales rose +5.9% to a SAAR of 5.04 million.  Sales are at the highest level since November 2009, a time when the homebuyer tax credit was still in effect.  Distressed sales accounted for 22% of sales.
  • New home sales rose +4.4% to a SAAR of 377,000. Both the median and average sales prices increased.  
  • The S&P/Case Shiller-Home Price Index (20-City Composite) fell -0.1% but has gained +4.3% over the last 12 months.  Home prices are back to autumn 2003 levels.
  • The Conference Board Leading Economic Index declined -0.2% in November, bringing its six month growth rate to zero.  




Key U.S. Policy News
  • At the 11th hour Congress and the President agreed to a deal to avert the worst case scenario of the fiscal cliff.  The American Taxpayer Relief Act makes permanent (i) current tax rates incomes below $400,000 individual/$450,000 joint, (ii) a tax rate of 39.6% for those in the top bracket, (iii) the Alternative Minimum Tax (AMT) patch, and (iv) an increase in the capital gains and dividend tax rates for those in the top bracket to 20% (23.8% including the new tax on investment income from Obamacare).  The 2% payroll tax cut, which impacts all workers, was not extended.  The bill does little on the spending side except to delay the sequester for two months.  As a result, fiscal drag for 2013 will be reduced from an estimated 3.5% of GDP to closer to 1.0-1.5% of GDP.  It also sets us up for more fiscal policy uncertainty in the first quarter as the debt ceiling needs to be raised and the sequester addressed.  


The FOMC decided to replace Operation Twist with the same amount ($45 billion) in outright purchases of U.S. Treasuries.  Together with the $40 billion of MBS purchases, QE will be $85 billion per month.  Instead of indicating a date for future rate hikes, the FOMC now states that short-term rates will stay near zero as long as the unemployment rate remains below 6.5%, inflation is projected to be no more than 2.5%, and longer term inflation expectations are well anchored.  

The minutes of the last FOMC meeting revealed that some members felt it would be appropriate to slow or stop bond purchases before the end of 2013.  There was also a discussion of the unintended consequences of additional quantitative easing, surrounding market functioning and an eventual exit strategy.  The end of asset purchases, and eventually a rate increase, will be dependent on the health of the economy and the job market.


Key Market Data and Events

Annualized for periods greater than one year.  Past performance is no guarantee of future results.  Source: FactSet, Red Rocks Capital, Hedge Fund Research.  Total returns as of 12/31/12.

  • 2012 was definitely a better year than it felt.  Despite periods of risk-on / risk-off due to uncertainty surrounding the Eurozone crisis, a slowdown in China, and the U.S. fiscal cliff, the global equity and credit markets were strong.  Central bank liquidity helped fuel the rally.
  • The S&P 500 Index price gain of 13.4% is nearly double the benchmark’s average gain of 7.5% since 1926.  The index gained +16.0% on a total return basis.
  • Strongest performing sectors in 2012 were financials and consumer discretionary, while energy and utilities were the worst performing sectors.  Concerns over an increase in the dividend tax rate weighed on the high yielding utilities sector.
  • There was little performance differentiation between market cap and styles.  After a fourth quarter surge, mid caps ended the year ahead of large and small caps.  Value outperformed growth across market caps, but by historically small margins.
  • In a reversal from 2011, international equities outperformed domestic equities thanks to a very strong fourth quarter.  All regions posted gains in 2012 and only seven of 45 countries in MSCI All Country World Index declined.
  • Germany was the strongest performing market, gaining over 32%, followed by a 22% gain in France. Japan was a strong performer on a local basis due to a strong yen, but lagged in U.S. dollar terms.
  • Emerging markets also posted a strong fourth quarter and ended the year ahead of developed international markets, gaining almost 19%.  However, performance was mixed.  The BRIC countries gained only 14.9%, weighed down by Brazil which, hampered by a weaker currency and slowing economy, eked out a gain of only 0.3%.  Mexico was an attractive opportunity in 2012, gaining over 29%.
  • Bonds had a decent year, driven by strong returns in the corporate sector.  The Barclays Aggregate Index posted its thirteenth consecutive year of positive returns.  
  • Interest rates remained range bound in 2012.  The 10-year U.S. Treasury Note ended the year at a yield of 1.78%, just 11 basis points lower than where it began the year.  The Barclays Treasury Index returned 2% over that period.  
  • Spread product performed very well as investors continue to seek out yield in this low nominal yield environment.  Strong demand helped compress spreads.  Corporate bonds gained over 9% and the more risky areas of spread product – high yield and emerging market debt – fared even better.  
  • Municipal bonds sold off in December due to increased supply and concerns that their tax exempt status would be impacted with any fiscal cliff resolution.  However, they posted strong gains for the year, outperforming taxable bonds. Municipal issuance for new capital dropped to just 40% in 2012, the lowest level since 2004.  Limited supply growth should help keep yields low.
  • Global REITs posted a very strong 2012, gaining over 28%, as investors continued to place a premium on yield producing assets.  International REITs led U.S. REITs as valuations were much more attractive coming into the year.  Asian REITs gained over 45% while European REITs gained over 30%.  From a sector perspective, industrial and retail REITs led, while residential REITs lagged.
  • The commodity complex delivered mixed results in 2012.   Even after a decline of over -5% in the fourth quarter, gold gained for a twelfth consecutive year, its longest winning streak since the U.S. abandoned the gold standard in 1968.  Grains sold off sharply in the fourth quarter but ended the year with a 16% gain.  Significant declines in coffee led to a decline of over -18% for softs.  Industrial metals were positive on the year, but crude oil experienced a double-digit decline.  
  • In the listed private equity asset class, companies experienced double-digit gains in net asset value and discounts closed, leading to gains over almost 30% for the year.



Outlook
Macro drivers, including the U.S. presidential election and fiscal cliff, the ongoing Eurozone crisis, and a slowdown in China moved the markets in 2012.  These macro events led to periods of risk-on / risk-off during the year, but overall it was a great year to be invested in risk assets.  Massive liquidity provided by central banks globally helped fuel the rally.  We maintained the status quo in Washington, Europe muddled through, China looks to have engineered a soft landing and politicians averted the worst case scenario of the fiscal cliff in the eleventh hour.  

A number of positives exist that could continue to support markets and the economy in 2013.  Central banks globally remain accommodative and stand ready to implement more extraordinary measures if necessary.  The anticipated fiscal drag has been reduced and Congress has eliminated near term uncertainty surrounding tax rates.  The U.S. housing market is also in a position to contribute to growth in 2013, boosted by pent up demand for household formation, firmer prices, and a high level of affordability.  U.S. companies remain healthy with solid balance sheets flush with cash that can be invested in people or capital expenditures.  Equity market valuations remain reasonable, especially relative to other asset classes like fixed income.

However, major risks facing the economy and markets remain, including:
U.S. policy uncertainty continues: While the fiscal cliff deal resolved some of the uncertainty on the tax side, it sets up more fiscal policy uncertainty and drama in Washington in the first quarter.  In addition to the delay of the spending sequester for two months, we will hit the debt ceiling limit in March.  The deal does little to address our long term unsustainable fiscal path, and a lack of a credible plan of action this year to stabilize our debt to GDP ratio may trigger another downgrade of our sovereign debt.  

European sovereign debt crisis and recession: The promise of bond purchases by the ECB has driven down borrowing costs for problem countries and bought policymakers time, but it cannot solve the underlying problems in Europe.  Austerity measures are serving only to weaken growth further and cause higher unemployment and social unrest.  
Sluggish global growth: There was evidence of slower global economic growth in the second half of 2012.  The U.S. continues to muddle through at sub-3% growth, and even a reduced fiscal drag of 1-1.5% of GDP, primarily driven by the elimination of the payroll tax cut, will negatively impact growth in the first quarter of 2013.  Europe is in recession territory.  Evidence of a soft landing in China is mounting after growth weakened meaningfully last year.  Weaker economic growth will flow through to weaker earnings and top line growth.

These unresolved macro risks will keep the markets susceptible to bouts of volatility throughout 2013.  Because of massive government intervention in the global financial markets, we will continue to be susceptible to event risk.  As a result, our portfolios will continue to be positioned with a modestly defensive bias until we see resolution of the macro uncertainties.  Instead of taking a strong position on the direction of the markets, we seek to take advantage of high conviction opportunities and strategies within asset classes.  



Notable Numbers
  • Up vs. Down:  The split between “up” and “down” days for the S&P 500 over the last 50 years (i.e., 1963-2012) is 53% “up” and 47% “down.”  The split during 2012 was 54/46.  The S&P 500 is an unmanaged index of 500 widely held stocks that is considered representative of the stock market (source: BTN Research).     


  • Inside the Index:  37 of the 500 individual stocks (i.e., 7% of the stocks) in the S&P 500 gained at least +50% in 2012.  130 stocks (i.e., 26% of the stocks) gained at least +25%.  106 stocks (i.e., 21% of the stocks) finished the year with a stock price lower than where it started the year (source: BTN Research).   


  • Missing the Best:  The total return for the S&P 500 was +16.0% (total return) in 2012.  If you missed the 3 best percentage gain days last year, the +16.0% gain falls to a +8.4% gain (source: BTN Research).    


This newsletter is intended to provide opinions and analysis of the general conditions of the market and economy, but is not intended to provide personalized investment advice. Statements referring to future actions or events, such as the future financial performance of certain asset classes or market segments, are based on the current expectations and projections about future events provided by various. sources, including Brinker Capital's Investment Management Group. These statements are not guarantees of future performance and actual events may differ materially from those discussed. This commentary includes statistical information obtained from various third-party sources. Brinker Capital believes those sources to be accurate and reliable; however, we are not responsible for errors by third-party sources on which we reasonably rely. Performance data represents general indexes representative of certain asset classes and are not indicative of actual past performance of any specific portfolio managed or sponsored by Brinker Capital. 
Appendix
*Returns as of 12/31/12.  Annualized for periods greater than one year.  Past performance is no guarantee of future results. 
Source: FactSet

Glossary
Barclays Capital Municipal Bond Index – A benchmark index that includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than two years) selected from issues larger than $50 million.
Barclays Capital U.S. Aggregate Bond Index – An unmanaged market-value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year.
Barclays Capital U.S. TIPS Index (Treasury Inflation-Protected Securities) –The Barclays U.S. TIPS Index consists of inflation-protection securities issued by the U.S. Treasury. 
BofA Merrill Lynch 3-7 Year Municipal Bond Index – The index measures the performance of mutual bonds with maturities between three and seven years.
Conference Board Leading Economic Index –An American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of ten key variables. These variables have historically turned downward before a recession and upward before an expansion.
Consumer Price Index (CPI) –Consumer Price Index is a measure of the cost of goods purchased by average U.S. household. It is calculated by the U.S. government's Bureau of Labor Statistics. 
Dow Jones Industrial Average (DJIA) – The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
Dow Jones/UBS Commodity Index – A rolling commodities index composed of futures contracts on 19 physical commodities traded on U.S. exchanges. The index serves as a liquid and diversified benchmark for the commodities asset class.
Dow Jones U.S. Total Stock Market – The Dow Jones U.S. Total Stock Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data.  The index was created in 1974.
Emerging Markets (EM) – A foreign economy with a low to middle per capita income that is developing in response to the spread of capitalism and has created its own stock market.  Analogous to small growth companies, emerging markets have high potential as well as high risk.  Such countries constitute approximately 80% of the global population, and represent about 20% of the world's economies.  
Exchange Traded Fund (ETF) – A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
FTSE EPRA/NAREIT Global Real Estate  (Financial Times and London Stock Exchange European Public Real Estate Association/National Association of Real Estate Investment Trusts®) –The FTSE EPRA/NAREIT Global Real Estate Index is designed to represent general trends in eligible listed real estate stocks worldwide.  Relevant real estate activities are defined as the ownership, trading and development of income-producing real estate.  Only closed-end companies listed on an official stock exchange are included in the index.
Gross Domestic Product (GDP) – GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. 
HFRX Global Hedge Fund Index – The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It comprises eight strategies: convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset-weighted based on the distribution of assets in the hedge fund industry.  
ISM Manufacturing PMI – A monthly index released by the Institute of Supply Management which tracks the amount of manufacturing activity that occurred in the previous month. This data is considered a very important and trusted economic measure. If the index has a value below 50, due to a decrease in activity, it tends to indicate an economic recession, especially if the trend continues over several months. A value substantially above 50 likely indicates a time of economic growth. The values for the index can be between 0 and 100.
ISM Non-Manufacturing PMI – ISM Non-Manufacturing Index is a gauge of business conditions in non-manufacturing industries, based on measures of employment trends, prices and new orders. Though non-manufacturing sectors make up the majority of the economy, the ISM Non-Manufacturing has less market impact because non-manufacturing data tends to be more cyclical and predictable. However, these sectors do account for a considerable portion of CPI. As a result, the figure gives insight into conditions which can impact output growth and inflationary pressures. 
MSCI All Country World ex-U.S. (Morgan Stanley Capital International) –The MSCI All Country World Index ex-U.S. is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, except the U.S.  The index consists of 47 country indices comprising 22 developed and 25 emerging market country indices.
MSCI EAFE (Morgan Stanley Capital International Europe, Australasia and Far East) –The MSCI EAFE Index is recognized as the preeminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indices, representing the developed markets outside of North America: Europe, Australasia and the Far East.
MSCI Emerging Markets (Morgan Stanley Capital International) –The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2006, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
National Association of Securities Dealers Automated Quotations (NASDAQ) – The NASDAQ Composite Index is a market-capitalization-weighted, unmanaged index that is designed to represent the performance of the National Association of Securities Dealers Quotation System, which includes more than 5,000 stocks traded only over the counter and not on an exchange. The index does not include the reinvestment of dividends.
Real Estate Investment Trust (REIT) A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
Red Rocks Listed Private Equity Index – The Red Rocks Listed Private Equity Index is designed to track the performance of the largest and most liquid publicly traded private equity firms principally invested in the United States and publicly traded private equity portfolios with principal investments in the United States. The publicly traded stocks within the Index are traded on any nationally recognized exchange worldwide.
Russell 1000 – Measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $13.9 billion; the median market capitalization was approximately $4.9 billion. The smallest company in the Index had an approximate market capitalization of $2.0 billion.
Russell 1000 Growth – Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000 Value – Measures the performance of Russell 1000 companies with lower price-to-book ratios and forecasted growth values.
Russell 2000 Small Cap – Measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of $218.4 million.
Russell 2000 Small Cap Growth – Measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Small Cap Value – Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 2500 – Measures the performance of the 2,500 smallest companies in the Russell 3000 Index.
Russell 2500 Growth – Measures the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2500 Value – Measures the performance of Russell 2500 companies with lower price-to-book ratios and forecasted growth values.
Russell 3000 – This index encompasses the 3,000 largest U.S.-traded stocks, in which the underlying companies are all incorporated in the U.S. 
Russell Mid Cap – Measures the performance of the 800 smallest companies in the Russell 1000 Index, which represents approximately 30% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $5.3 billion; the median market capitalization was approximately $3.9 billion. The largest company in the index had an approximate market capitalization of $14.9 billion.
Russell Mid Cap Growth – Measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index.
Russell Mid Cap Value – Measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value Index.
Seasonally Adjusted Annual Rate (SAAR) – Rate adjustment used for economic or business data that attempts to remove the seasonal variation in data.  Calculated by dividing the unadjusted annual rate for the month by its seasonality factor and crated an adjusted annual rate for the month. 
Standard & Poor's 500 Index (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. The S&P 500 is a market-value-weighted index -- each stock's weight in the index is proportionate to its market value.  
Standard & Poor’s/Case-Shiller Home Price Index – The S&P/Case-Shiller Home Price Index measures the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States.  The index uses the repeat sales pricing technique to measure housing markets.  The index is calculated monthly and published with a two-month lag.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Brinker Capital.

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  1. 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 asMarchsets 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. Leigh Lowman, CFA, Investment Manager. 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.
    Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.
    The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.
     
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  2. With 39 percent of Americans feeling ill-prepared for retirement, according to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey, we are often challenged to come up with a solution to make saving easier.[1] Unfortunately, there are no easy solutions, and in the absence of unplanned windfalls, there are no shortcuts. There are, however, strategies that will help you overcome behavioral impediments by infusing discipline into your retirement savings plan. Here are six strategies to consider:
    1. Automate the process. The best way to make retirement savings a priority is to put it on autopilot, so each time you get paid you save for the future without giving it much conscious thought. If you have an employer-sponsored retirement plan, arrange for a percentage of your pay before taxes to go directly into your retirement account. Also, commit to increasing the percentage you allocate to your retirement account every time you get a raise. The impact of automated savings plans to net pay is often far less than anticipated, and after time it goes somewhat unnoticed. The impact on your nest egg, however, could be quite significant.
    2. Make it binding. Make your future self a promise to refrain from withdrawing any money from your account before retirement. The best way to protect your retirement account is to establish a separate emergency reserve fund. It is typically recommend setting aside six months’ worth of income to cover unexpected expenses like uncovered medical costs, home repairs, or other unplanned surprises. With an emergency fund, you have a resource to fund whatever immediate needs arise without tapping your retirement account or delaying your savings goals.
    3. Pay your future self what you paid your creditors. After you’ve cleared an outstanding debt, consider “continuing” those payments by making deposits into your retirement account. For example, if you pay off a car loan that previously cost you $500 a month, allocate that same amount to your retirement account.
    4. Establish a home for “found” money.  It’s not uncommon for someone to view inheritances, tax refunds, and company bonuses as “found money,” and splurge on items they would not otherwise buy. If you receive a windfall or even a little extra, consider allocating the amount into three portions: one for long-term savings goals, one for short-term savings goals, and one to reward yourself.
    5. Use reward points. Several credit card companies offer specialized cash back programs which convert rewards points into cash deposits into 529 college savings plans, brokerage accounts, or other retirement accounts (e.g., IRAs).
    6. Get an accountability partner. To increase the likelihood of meeting your retirement savings goals, ask someone to hold your feet to the fire. Your accountability partner should be objective, and unlike a spouse, have no vested interest in daily household financial decisions. Your accountability partner should track your progress, offer encouragement, and continually remind you of your long-term goal. If you are already working with a financial advisor, ask him or her to take an active role in keeping you motivated and engaged in meeting your retirement goals.
    Screen Shot 2017-11-08 at 2.44.59 PM.png

    As the late Jim Rohn once said, “We must all suffer from one of two pains: the pain of discipline or experience the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” Failing to save enough for retirement comes in as the top financial regret of older Americans.[2] So, if saving for retirement poses a challenge to you today, give some thought to the challenges your future self will face if you don’t take these steps.
    For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.
    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.
    [1] Retirement Confidence Survey 2017, Employee Benefit Research Institute
    [2] Bankrate Financial Security Index Survey, May 17, 2016

    Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.
    The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.
     
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  3. In a widely anticipated move, the Fed increased interest rates by 25 basis points on March 15, 2017, the second interest rate hike in three months and there are talks of potentially two more raises this year. Positive economic data and a rise in business confidence served as a catalyst for the Fed to continue its interest rate normalization efforts with the possibility of as many as two additional rate increases later this year. However, recent rhetoric from the Fed reaffirmed their commitment to move at a cautious pace, supporting Brinker Capital’s view that the process of longer term rates will likely be prolonged and characterized in fits and starts, rather than linear, as the market adapts to the new normal.
    Blog1
    Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. U.S. Data are as of February 28, 2017. Market expectations are the federal funds rates priced into the fed futures market as of the date of the December 2016 FOMC meeting. *Forecasts of 17 Federal Open Market Committee (FOMC) participants are median estimates. **Last futures market expectation is for November 2019 due to data availability.
    Catalysts for higher interest rates
    Many positive factors are currently present in the economy that point to a move toward interest rate normalization:
    • Stable U.S. economic growth. Economic growth in the U.S. has been modest but steady. The new administration and an all-Republican government will likely further stimulate the economy through reflationary fiscal policies including tax cuts, infrastructure spending and a more benign regulatory environment.
    • Supportive credit environment. High yield credit spreads have meaningfully contracted and are back to the tight levels we saw in 2014. Commodity prices have also stabilized.
    • Inflation expectations. Historically, there has been a strong positive correlation between interest rates and inflation. Many of the anticipated policies of the Trump administration are inherently inflationary. Inflation expectations have increased accordingly and headline inflation has been moving towards the Fed’s 2% long-run objective. In addition, we believe we are in the second half of the business cycle, typically characterized by wage growth and increased capital expenditures, both of which eventually translate into higher prices.
    • Unemployment levels. The labor market has become stronger and is nearing full employment. Unemployment has dropped to a level last seen in 2007.
    Historical perspective
    From 1965 to present, the Fed has implemented policy tightening a total of 15 times and the impact on the bond market has not always translated into longer rates rising. For example, back in 2004 the Fed began raising rates in response to beginning concerns of a housing bubble and the bond market did well as the yield on the 10-year Treasury fell.
    More recently during the current market cycle, the Fed increased rates by 25 basis points in December 2015. The 10 year Treasury yield fell and the bond market generated a positive return while equities plummeted in the first quarter of 2016. A year later, the Fed increased rates by 25 basis points in December 2016. The impact on markets was minimal with both equities and fixed income generating strong positive returns in the two months that followed.
    Fixed income allocation
    Traditional fixed income has historically provided a hedge against equity market risk with substantially less drawdown than equities. Although a rising rate environment would suggest flat to negative returns for some areas of fixed income, the asset class still provides stability in portfolios when equities sell off. For example, fixed income provided an attractive safe haven during the market correction in the beginning of 2016.
    In an environment of rising rates, Brinker Capital believes an allocation to traditional fixed income is still merited as we expect the asset class to provide a good counter to equity volatility.
    Blog2
    Source: Fact Set, Brinker Capital, Inc. Index returns are for illustrative purposes only. Investors cannot invest directly in an index. Past performance does not guarantee future results.
    Overall, much uncertainty remains on the timing and trajectory of interest rate changes. Brinker Capital remains committed to helping investors navigate through a rising rate environment through building diversified portfolios across multiple asset classes.
    Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.
    The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.

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    Labels: Basis Points Charleston Miami Charlotte Atlanta Financial Advisor SC NC FL GA Fed Federal Reserve Financial Advice interest rates Raises

  4. Global events, such as the intensely divided presidential election that we just lived through, are certain to generate some periods of market volatility of varying lengths in addition to a significant amount of stress. However, we urge financial advisors and investors to retain a few dos and don’ts to help manage post-election anxiety:
    Don’t equate risk with volatility. Volatility does not equal risk. Risk is the likelihood that you will not have the money to live the life you want to live. Paper losses are not “risk” and neither are the gyrations of a volatile market. Long term investors have been rewarded by equity markets, but those rewards come at the price of bravery during periods of short-term uncertainty.
    Do know your history. Despite what political pundits and TV commentators would have you believe, this is not an unusually scary time to be alive. The economy continues to grow (slowly) and most quality of life statistics (crime, drug use, teen pregnancy) have been declining for years. Markets have always climbed a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.
    Don’t give in to action bias. At most times and in most situations, increased effort leads to improved outcomes. Investing is that rare world where doing less actually gets you more.

    Do take responsibility. Most investors are likely to tell you that timing and returns are the biggest drivers of financial performance, but research tells another story. Research suggests that you are the best friend and the worst enemy of your own portfolio. Over the last 20 years, the market has returned roughly 8.25% per annum, but the average retail investor has kept just over 4% of those gains because of poor investment behavior.1 At times when market moves can feel haphazard, it helps to remember who is really in charge.
    Don’t focus on the minute to minute. If you are investing in the stock market you have to think long-term. As mentioned above, you can avoid action bias by not checking your portfolio status all day every day, especially during times of higher volatility. Limited looking leads to increased feelings of security and improved decision-making.
    Do work with a professional. Odds are that when you chose your financial advisor, you selected him or her because of their academic pedigree, years of experience or a sound investment philosophy. Ironically, what you may have overlooked is the largest value he or she adds—managing your behavior. Studies put the value added from working with an advisor at 2 to 3% per year. Compound that effect over a lifetime, and the power of financial advice quickly becomes evident.
    Source: (1) Dalbar, Inc. Quantitative Analysis of Investor Behavior. Boston: Dalbar, 2015.
    Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.
    The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.

    Click here for more Newsletters. Thank you.

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    Labels: 2016 Election Financial Advice Investment Advice Investor Returns Markets portfolio Results

  5. Maximizing tax credits offered by the IRS and various states around the US is key to maximizing your financial position. There are many types of tax credits available for both individuals and businesses. One of the better ones is for angel investors in the State of SC who invest in a qualified business. Investors can attain up to 35% as a tax credit. This tax credit was created by Nikki Haley under the High Growth Small Business Creation Act, alternatively known as the Angel Investor Act on June 14, 2013.



    Let's look at the math and see why this one is so important. If you are an accredited investor in South Carolina who puts $100,000 into a qualified business like NannyPod for example, you could potentially get a 35% tax credit.

    If a company is offering a convertible note, with a minimum valuation of $2M and a maximum valuation of $5M, then the $100,000 that you put in could potentially convert to between 5% and 2% equity ownership. However, due to the 35% tax credit, you actually realize this ownership for an investment cost of $65,000.

    $100,000 x 35% = $35,000
    $100,000 - $35,000 = $65,000

    Hence, your investment of $100,000, really turns out to be an investment of $65,000.

    Now let's look at what happens when the company is sold, and you get a return on your investment. If the company you invested in does well, and has a successful exit strategy of say $50M in 5-6 years time, then your worst case scenario 2% ownership is now worth $1M. 



    If we calculate the return on $100K growing to $1M, then you made 1000%. However, if we calculate the return on $65K invested due to receiving the $35K tax credit, then you actually made 1538%, an additional 538% more.

    This clearly illustrates why maximizing tax credits can be of huge benefit, especially to angel investors in the State of SC. 


    The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.

    Click here for more Newsletters. Thank you.

    Miami FL, Charleston SC, Atlanta GA, Charlotte NC - Tax, Financial Planning, Investments and Insurance.

    Connect and Read More About Us    

    Hedges Wealth Management LLC - A Registered Investment Adviser
    Hedges Insurance Agency LLC
    Tax, Financial Planning, Investments and Insurance Advisors
    310 Seaport Lane #2121 | Mt Pleasant | SC 29464
    T  +1 843 270 2534 




     





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    Labels: 35% Act Angel Investor Charleston Miami Charlotte Atlanta Financial Advisor SC NC FL GA NannyPod Return SC tax credit

  6. There is no silver bullet when it comes to investing or wealth management in general… if there was, we would all be sitting on yachts and most likely not reading this article. However, there needs to be some clarity and calm on the very complex 'Brexit' subject for our US based clientele. 





    We experienced first hand the creation of Exchange Rate Mechanism (ERM), Britain's exit from the ERM, the intro of the Euro, and now the exit from the EU (aka "Brexit"). Many people travel, but those who live in places differ tremendously than those who spend two nights in a city and are up at dawn to find the next locale in a neighboring country or city. When you live somewhere, you remember far more. Having lived in the UK for over 20 years, in the USA for over 15 years, and multiple other countries like Australia, Argentina, Senegal, Italy, France and Spain, here is our first hand perspective in short… 

    • The Brexit referendum consisted various complex subjects (immigration, EU participation, grants, trade). Some voted with their emotions, some voted with their wallets...


    • Brexit now allows a potential UK Independence Day that will compete with July 4th (parody!)

    • Brexit will mean higher inflation, higher unemployment, slower growth, higher interest rates in the UK

    If you are still concerned, and require more extensive reading, please click the below link on the recent Goldman Sachs Economic Outlook. 




    Need personal financial advice? Get in touch with us instantly for an on-demand in person meeting or phone call on any financial subject matter. Just click here.



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    Labels: America Brexit Charleston Miami Charlotte Atlanta Financial Advisor SC NC FL GA EU euro Independence inflation Unemployment USA

  9. 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.

    The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Social Security Timing.

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    T  +1 843 270 2534 


     

    If you are looking for more information on any subject in this Blog, please Contact Us directly electronically or via phone. Thank you.

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    Labels: 2016 Economic Outlook bonds Equities Financial Advisor Charleston Miami Charlotte Atlanta Global Growth interest rates S&P 500 Stock Market Outlook USA
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