Fourth Quarter Update: What s Next for Portfolio Allocations

Transcription

1 Fourth Quarter Update: What s Next for Portfolio Allocations

2 Please see important disclosures, chart explanations, Agenda Q3 Performance Review Review of move to benchmark weight in asset categories Trade, earnings and valuations What we are watching for our next change in allocation Current Positioning

3 Q3 Performance: US outperformance is back Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to

4 Waiting at benchmark weight on asset categories Please see important disclosures, chart explanations, Please see important disclosures, chart explanations,

5 Please see important disclosures, chart explanations, Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to Breadth of stock market advance has fallen

6 Narrow Leadership as well Please see important disclosures, chart explanations, Please see important disclosures, chart explanations,

7 The path to fair trade causing strain on global trade Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to

8 US Earnings biggest positive in ? Please see important disclosures, chart explanations, Please see important disclosures, chart explanations,

9 Need continued earnings growth to subdue valuations Please see important disclosures, chart explanations, Please see important disclosures, chart explanations,

10 High earnings growth expectations not always good for performance Please see important disclosures, chart explanations, Please see important disclosures, chart explanations,

11 Despite rising rates, central banks remain accommodative, but. Please see important disclosures, chart explanations, Please see important disclosures, chart explanations,

12 Please see important disclosures, chart explanations, Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to US 10 Yr Treasury Breaks out of Downtrend as Fed Normalizes

13 US equity market momentum still leans bullish Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to

14 Getting Overweight: Rally Watch Indicators far from supportive Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to

15 Getting Underweight: Bear Watch Indicators not flashing a warning Please see important disclosures, chart explanations, Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For vendor disclaimers refer to

16 BWM Tactical Positioning Stocks Bonds Cash U.S. Large Cap Mid/Small Cap International Credit Duration OVERWEIGHT MARKETWEIGHT UNDERWEIGHT Please see important disclosures, chart explanations, No strategy assures success or protects against loss.

17 Please see important disclosures, chart explanations, Bottom Line Currently marketweight equities and bonds in response to narrowing global breadth Trade tensions beginning to weigh on global trade and might pose a risk to the global expansion While US earnings growth has been great, future growth might be already reflected in today s prices Rising bond yields weighing on fixed income returns Watching our objective indicators for the next allocation shift.for now, we remain at benchmark as Q4 begins.

18 THE ADVISORS OF BROWN WEALTH MANAGEMENT ARE LPL REGISTERED REPRESENTATIVES WITH AND SECURITIES OFFERED THROUGH LPL FINANCIAL, MEMBER FINRA/SIPC. INVESTMENT ADVICE OFFERED THROUGH STRATOS WEALTH PARTNERS, LTD., A REGISTERED INVESTMENT ADVISOR. BROWN WEALTH MANAGEMENT AND STRATOS WEALTH PARTNERS ARE SEPARATE ENTITIES FROM LPL FINANCIAL. THE ECONOMIC FORECASTS SET FORTH IN THE PRESENTATION MAY NOT DEVELOP AS PREDICTED AND THERE CAN BE NO GUARANTEE THAT STRATEGIES PROMOTED WILL BE SUCCESSFUL. ALL PERFORMANCE REFERENCED IS HISTORICAL AND IS NO GUARANTEE OF FUTURE RESULTS. ALL INDICES ARE UNMANAGED AND MAY NOT BE INVESTED INTO DIRECTLY. UNMANAGED INDEX RETURNS DO NOT REFLECT FEES, EXPENSES, OR SALES CHARGES. INDEX PERFORMANCE IS NOT INDICATIVE OF THE PERFORMANCE OF ANY INVESTMENT. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

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20 Please see important disclosures, chart explanations, Executive Summary Slide 4 - This chart plots the performance of NDR s Global Asset Allocation Recommendations versus a benchmark of 55% stocks, 35% bonds, and 10% cash. Recently, their model reduced its equity weighting and is now marketweight each asset class in the model. Slide 5 - This chart is designed to show the importance of remaining in harmony with long-term trends. The top clip plots the MSCI All Country World Index (priced in local currency) as a proxy for global equities. The middle clip plots the percentage of ACWI markets above their 200-day moving averages. The bottom clip illustrates the trends in the moving averages themselves. Plotted is the percentage of ACWI markets with rising 200-day moving averages. When the percentage of markets with rising moving averages has been above the upper parameter, the MSCI ACWI has tended to outperform and when the percentage has been below the lower parameter, the index has tended to underperform. Slide 6 - This chart looks at the top 10 stocks as a percentage of the ACWI (All Country World Index). The market cap of the ACWI s top 10 stocks now account for 12% of the total market cap, with the chart at right reminiscent of the late 1990s. It would be premature to say we are in a similar kind of tech bubble experienced in the late 1990s, it should be noted that 8 of the top 10 stocks are tech-related stocks. Slide 7 The chart on the left plots the about of tariffs applied by the United States vs the amount of tariffs applied to the United States. As can be seen, most countries apply more tariffs to the US than the US applies to them. The chart on the right shows NDR s Global Trade Monitor. This tool is made up of a number of indicators that ty to gauge the health of the trade environment. This tool can be used to identify an unhealthy trade environment before companies report poor earnings due to trade restrictions. Slide 8 - The chart shows analysts consensus projections for S&P 500 earnings per share for calendar years 2012 through The average equity analyst tends to start each year with excessively rosy expectations for corporate earnings which are progressively tempered over time. These downward revisions can clearly be seen in the chart. The anomaly in the upper right corner of the chart is the 2018 and 2019 projections. Rather than adjusting earnings estimates downward, the analysts have revised their projections upward for 2018 and Slide 9 - The chart on this slide shows that the S&P 500 valuations have stabilized and even declined slightly, as of late. However, the S&P is still currently overvalued, making stocks more expensive than they have been in the past. Slide 10 This chart compares the performance of the S&P 500 Index with expected year-ahead growth in earnings for the companies in the index. The top clip plots the monthly average of the S&P 500. The bottom clip plats the median 12-month percent change in the one-year analyst forecast out of the 500 components of the index. One might assume that strong expected earnings growth would imply strong stock price gains, since the value of a stock is assumed to be based on the earnings power of the underlying company. However, in the short- to intermediate-term, investors are more likely to see very high or low earnings growth rates as unsustainable and likely to revert to the long-run average. Therefore, if earnings growth is high, investors might sell their equity position in fear that a slowdown in growth is on the horizon. Slide 11 - This chart compares global industrial production to a GDP-weighted average of global central bank interest rates. The bottom clip plots a a GDP-weighted average of twenty two benchmark country interest rates. Combined, the economies these central banks cover represent over 75% of the world's GDP, making this measure a good proxy for a global central bank interest rate. As can be seen, despite a recent rise in global interest rates, central banks remain accommodative. Slide 12 - This chart plots the yield of the 10 year Treasury note. The dotted lines are trendlines that treasury yields have followed for many years. Just recently, the 10 year treasury broke out of the downtrend as the fed normalizes. Slide 13 - The chart in this slide analyzes how healthy the market is, known as Market Breadth, from a technical perspective. The model, plotted in the lower clip of the chart on the right, aggregates the signals of over 100 component indicators and generates a reading between 0% and 100%, reflecting the percentage of the component indicators which are currently giving bullish signals for the S&P 500 Index. The indicator still remains in the bullish zone.

21 Please see important disclosures, chart explanations, Executive Summary Slide 14 This chart shows the maximum rallies in global stocks following aggregate percentage bullish Rally Watch indicator readings of 55% or higher. The top clip plots a blended benchmark of global stocks (MSCI World Index price returns prior to 1988 and MSCI ACWI price returns thereafter), while the bottom clip plots the aggregate percentage of bullish indicators from the Rally Watch Report (ICS_55.RPT). There are currently 16 indicators in the Rally Watch Report -- five short-term breadth thrust indicators, four intermediate-term indicators (50-day), four longer-term indicators (200 days or longer), and three sentiment indicators. Slide 15 - This chart is the NDR bear market watch indicator. The chart still remains in healthy territory, however it has deteriorated slightly this year but has improved slightly as of late. The top clip plots the global stock price index, which is a blend of the MSCI World Index price returns prior to 1988 and the MSCI ACWI price returns thereafter. The bottom clip plots the percentage of Bear Watch indicators that have reached key bearish levels historically. As shown in the table at the bottom of the chart, there have been eight cases since October of 1985 where the percentage of indicators have risen above 40% for the first time in at least six consecutive months. The median drawdown over the next 12 months for all cases has been very high. Slide 16 - We are at benchmark weightings for stocks, bonds and cash. Within equities, we are overweight U.S. stocks primarily overweight large cap, marketweight mid/small cap, and underweight international equities. Within fixed income, we are overweight credit and have a focus on owning bonds with shorter duration.