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Welcome!
to this Special Report following the Election yesterday. Below you will see and read the perspectives on the elections results and what it means for you and your investments from 3 of the Institutional Money Managers we use.
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John R. Deitrick, CFP®
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Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
501 North Cattlemen Road, Suite 106, Sarasota, FL 34232
Tel (866) 641-2186
U.S. PRESIDENTIAL ELECTION CONCLUDES
SURPRISE RESULT AS PRESIDENT-ELECT TRUMP WINS
What Occurred?
As we all know, this was one of the most heated and contentious presidential elections in recent memory. However, as the night progressed, it became clear that President-elect Donald Trump would win the election. Furthermore, Republicans not only won the presidential election, but they also won Congress by securing a majority in both the House and the Senate.
U.S. equity markets had priced in a Clinton victory, so this outcome surprised many and global capital markets deteriorated throughout the night as a Trump victory became more and more likely. In many ways, this was a "Brexit Round 2" as the actual results of the vote differed from what markets had expected. U.S. equity markets started the day lower, but they are now moving back and forth and declines experienced early in the day were much less severe than what futures were indicating overnight.
GFPC INVESTMENT TEAM'S PERSPECTIVE
What Do We Expect
We expect elevated volatility to continue in the days and weeks ahead. Markets hate uncertainty, and since a Clinton victory was already priced in, we saw an initial knee-jerk reaction that looked a lot like how markets reacted to Brexit. In the short-term, markets are driven by emotions like fear, panic, greed and euphoria, but in the long run, we believe fundamentals are what matter. Often times, these initial reactions reverse, which was the case in the weeks following the Brexit vote.
We try to differentiate between politics and policy and we are currently witnessing the impact of politics playing out in real time. Politics tend to be more emotional, but policy is what can impact an economy and this takes a longer time period to play out.
There are some unknowns surrounding the policy positions that President-elect Trump will take as he has no political track record, which creates some understandable uncertainty in the market. For example, comments he has made about NAFTA and other trade agreements have driven action in the Mexican peso in recent weeks. It is important to understand that any policy changes, which could impact the economy, will take time to enact. Therefore, the market will have time to evaluate those specific proposals as they become clearer during his presidency.
We have thought for some time that investors should prepare for elevated volatility following a rather calm extended recent period in the market. The possibility for elevated volatility in the near term is even stronger now with the surprise election result. One of the bigger questions marks now is whether the Federal Reserve will raise policy rates in December, which had been the expectation before the election, but could be paused depending on incoming data over the next several weeks. We will watch these developments closely.
Ultimately, it is also important to realize that last night's election has not changed the current economic improvements we have seen of late in the economy. A few examples include:
- Unemployment rates have fallen to multi-year lows and payroll additions continue to show robust job growth.
- Wages accelerated in October at the fastest year-over-year pace since 2009 meaning consumers should have more money to spend.
- Consumer confidence remains elevated as gasoline prices are subdued and interest rates continue to be low.
GFPC INVESTMENT TEAM'S PERSPECTIVE
KEY TAKEAWAYS
Volatility will likely increase in the near-term as the emotions of this election play out, but policy is what impacts economic fundamentals in the long run and it will take some time for these items to be implemented. This is what we care about as long-term investors.
The U.S. economy continues to look solid and, as the largest economy in the world, we expect ongoing economic progress to continue as we close out 2016 and enter 2017.
We will continue to monitor capital market action, economic fundamentals and policy changes closely. We will act as necessary, but we are more concerned with the long-term investment environment and not necessarily any short-term market dislocations driven by emotions.
This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private Capital is an SEC Registered Investment Adviser.
Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
501 North Cattlemen Road, Suite 106, Sarasota, FL 34232
Tel (866) 641-2186
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By:
Sean Clark, CFA®, Chief Investment Officer for Clark Capital Management gives us insight to how they see the impact of the election.
Click on the link below to read:
Past performance is not indicative of future results. The opinions expressed are those of the Clark Capital Management Group Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investment portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research.
Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital's advisory services can be found in its Form ADV which is available upon request.
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Election Special: It's the Hard Place
11-09-2016
We wake up this morning to a new world. We avoided the rocks (a continuation of the present ineffective policy mix), but now have the hard place: President Trump. Although we see further downside for reasons beyond this election (see " Between a rock and a hard place"), the overdue correction we now find ourselves in is ultimately buyable. Here's our roadmap for the weeks ahead:
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Uncertainty reigns, initially Trump is such an unknown, non-establishment force that markets will struggle to understand future policy direction from Washington. Worries are high that he will mount a trade war with our major trading partners, a real ding to near-term growth. Markets also will fret about future Federal Reserve policy, both the near-term hike policymakers might still do in December, and more importantly the more hawkish Fed chair Trump ultimately will appoint in 2018 (or earlier if Janet Yellen resigns).
- When it rains, it pours Even while markets focus on near-term policy uncertainty, the other near-term negatives we noted previously (Brexit negotiations, China growth, anemic U.S. growth, oil price uncertainty along with a big OPEC meeting this month, the December Italian referendum, corporate credit and U.S. earnings downgrades for 2017) are unfortunately timed to heat up over the next few weeks. Bad combination.
- The future brightens We see this correction as ultimately buyable, just not quite yet. As we advance into the first quarter, Trump's economic team will begin to coalesce, and his market-positive agenda will begin to emerge. And with a Republican Congress behind him, the potential for many of these policies to become law is high. Among likely positive, pro-growth programs we envision are: corporate tax cuts (permanent, not temporary, and therefore more likely to affect investment behavior); heavy infrastructure and military spending; a serious effort to scale back the army of Obama-era regulators that are choking the economy; and a more hawkish Fed that will restore some interest-rate earnings power to savers and to our financial institutions. All of this should help revive growth in the U.S. and raise investor optimism.
We are holding our equity weighting in our stock-bond models at 50%, a modest underweight. However, for the first time in several months, we can safely say that our next move likely will be to raise that weighting. It is a matter of time and price. That's all.
In the meantime, the market got the hard place it was hoping to avoid. As we say in the gym, "no pain, no gain." The hard place it is! Taking a longer-term view, it's probably better than the rocks. Trust me.
Stephen Auth, CFA
Chief Investment Officer, Equities, Overseeing all of Federated's equity and asset allocation products globally.
Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.
Diversification and asset allocation do not assure a profit nor protect against loss.
Federated Global Investment Management Corp.
139144
Copyright © 2016 Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Telephone: 412-288-1900
Market Memo: Between a rock and a hard place
11-02-2016
As we approach the final leg of what has been a very difficult market environment in 2016, we find ourselves continuing to
urge caution. Most of the near-term concerns that have worried us-the U.S. election, the Fed, the dollar, European politics,
China, oil and 2017 earnings-remain concerns. Although markets are 4% off their all-time highs and near our 2,100
year-end target for the S&P 500, we see more downside than upside risk in the next few weeks. A lot of this concern is
driven by what is currently happening at the polls, but we think the present market malaise is more deep-rooted than this.
Let's review the sources of our near-term caution:
- Economic growth remains anemic Although last week's headline GDP growth rate for the third quarter seemed better than expected, the word is out that it wasn't. In fact, the positive surprise was largely driven by one-off factors including inventory accumulation ahead of the Christmas selling season and an unusually large shipment of soybeans to China. The underlying pace of U.S. growth remains barely above 2%, with little prospect of an acceleration any time soon.
- Central banks are backing off their 'lower forever' promise Both the Bank of Japan and the European Central Bank have disappointed markets over the last few weeks with a reversal of their quantitative-easing programs, effectively shifting away from their negative interest-rate policies. The Fed meanwhile is signaling strongly that it would like to hike in December. With wage inflation on the rise at the same time, markets have shifted from a "lower forever" scenario on interest rates to a "bond bear-market" mentality. We think this view is overdone, as we see little sign that companies have sufficient pricing power to wage inflation on to consumers. Still, just the acknowledgement by central banks that they are reaching the end of their rope for cutting rates has been enough to shake up bond markets, with the 10-year Treasury now rising ever closer to 2%. This has hurt the hitherto market-leading dividend-paying stocks as their valuations decline when the discount rate rises.
- The dollar is strengthening Although the dollar has recently taken a hit as the U.S. election has tightened, markets seem to be realizing that we've been in the midst of a stealth dollar rally since the spring of this year, with the greenback creeping up nearly 5% off early May levels after a major correction earlier this year. Dollar strength is a near-term negative given U.S. companies' earnings exposure to foreign markets.
- Oil prices seem capped at present levels The rally in oil prices off their February lows appears to have stalled in the $50 area. While we are comfortable that $50 is a "good enough" level for the U.S. economy (high enough to get our most efficient shale fields back on line, low enough to support consumers with lower energy prices), markets were hoping for more, particularly given oil's importance to S&P earnings. Indeed, if the oil recovery stalls here, we estimate it alone will shave $2 off consensus S&P earnings for 2017.
- Brexit fallout is still ahead of us Markets sense that vis-a-vis Brexit, we are more in the eye of the storm than in its hopefully calmer aftermath. Both sides of the English Channel seem stuck in a kind of dream state, hoping for the best but knowing in their heart of hearts that the U.K. and Europe are almost on an irreconcilable path to a "Hard Brexit," and all the economic dislocation that would cause.
- The U.S. election, as it is shaking out, seems to offer little upside As we approach Nov. 8, the election that we've always believed would be tight is shaping up to be just that-or maybe worse. In fact, for the markets near term, our base case now is that rather than lifting the policy uncertainty that has bedeviled us all year, the election could increase it. In fact, we could very well wake up on Wednesday morning very unsure about the policy implications ahead, even if we know the "winner" by then. Looking at the electoral map, for instance, it is no longer utterly unrealistic to envision a dead tie between Trump and Clinton, precariously throwing the election into Congress. Should Trump win (our best guess, by the way), supply-siders such as ourselves may have cause to celebrate the longer-term positive implications of corporate tax cuts and deregulation. But we suspect the market will fret over the near-term uncertainties surrounding Trump's policy agenda. And even if Secretary of State Clinton prevails, she'll assume the presidency under a cloud of suspicion, with at least one (maybe more) FBI investigation(s) on her trail and with a divided Congress at the other end of Pennsylvania Avenue. Hard to claim a mandate here, and future policy direction will be hard for the market to call.
- China's recovery remains uncertain Although China has proven resilient this year, slowing but not breaking, it has done so with a significant level of government fiscal support that probably isn't sustainable. So the outlook ahead for China seems to come down to how its European, Japanese and U.S. export markets are doing, and in no case is a pickup in the cards. China may not blow up, but it is difficult for equity markets to count on it for re-acceleration.
- 2017 earnings are still way too high. Bottom-up numbers for the S&P next year remain about $134, almost $20 above where we are likely to end 2016. Frankly, these numbers are simply not achievable, in our view, without some combination of a re-acceleration in global economic growth, oil prices and corporate profit margins. None of these seem likely, and our own forecast at Federated remains $125. Not bad, really. But below what is baked in at present price levels for stocks.
Add this all up, and we see stocks continuing to struggle through year-end. Stretched valuations and soft fundamentals
seem to cap near-term upside, while the high potential for a political or central bank policy shift threatens more near-term
downside. In this context, the coming presidential vote, which may leave us with either the policy uncertainty that would
come with a Trump win or the governing uncertainty that would come with a Clinton win, may prove an appropriate metaphor for the market's present dilemma. Said differently, for now at least, we find ourselves between a rock and a hard place....
Our recommendation is to remain cautious. We are maintaining our recommended 50% equity weighting for balanced-risk portfolios, just below the neutral point in our moderate growth stock-bond model. Within equities, we continue to favor defense over offense
.
Stephen Auth, CFA
Chief Investment Officer, Equities, Overseeing all of Federated's equity and asset allocation products globally.
Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.
Diversification and asset allocation do not assure a profit nor protect against los
Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services
produced in a country.
S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate
market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.
Federated Global Investment Management Corp.
138769
Copyright © 2016 Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Telephone: 412-288-1900
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I hope you find this information adds value. If you would like to talk to John regarding these, or any other financial concerns, please feel free to call us at (614) 602-6506 and we will be happy to schedule a visit.
If for whatever reason you no longer wish to receive this newsletter, it's very simple to unsubscribe at the bottom of the page.
Make it a Great Week!
Enjoy His gift of today!
Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC, an SEC Registered Investment Adviser. Past performance is not indicative of future results. This commentary is not intended as investment advice or an investment recommendation it is solely the opinion of our investment managers at the time of writing. Nothing in this commentary should be considered as a solicitation to buy or sell securities. Insurance and Annuity product guarantees are subject to the claims-paying ability of the issuing company, and are not offered through Global Financial Private Capital.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and the federally registered CFP (with flame design) in the US., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
AssetLock® is tracking software used to monitor the performance of a client's portfolio, and to predetermine the amount of downside the client is willing to tolerate. It is NOT an actual stop order and will NOT automatically sell the individual securities in the portfolio. Therefore, the AssetLock® value is a reference point to encourage a conversation between the advisor/firm and the client to determine if the client's portfolio should remain unchanged, reset the AssetLock® percentage by reallocating to a different risk profile, liquidate part or all of their portfolio or opt out of AssetLock®.
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John R. Deitrick
CFP®
Advanced Retirement Design LLC.
7263 Sawmill Rd.
Suite 150
Dublin, OH 43016
Office: 614.602.6506
Fax: 614.259.6094
Email: jdeitrick@advancedretirementdesign.com
advancedretirementdesign.com
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