DEA Meeting: Merrill Lynch Global Wealth Management and Richard Bernstein Advisors’ Market View

Kevin Taylor is a Senior Vice President with Merrill Lynch Global Wealth Management and has been with Merrill Lynch for 37 years.  In 1997, Registered Representative Magazine honored ten advisors nationally, including Kevin, as Outstanding Advisors and several years later, he was one of three nationally selected for their 25-year silver anniversary issue.  Kevin has been on D Magazine’s list of Top Wealth Managers, and a proud DEA member since 1981, serving as President in 1992.

Kevin thanked those in the DEA who are his clients, those who refer clients, as well as those in the DEA that he works with for other clients.  He is honored to be entrusted with your family’s finances and they will continue to do their part to earn that trust and to add value to what you are doing.  He is grateful for the great group of professionals in the DEA; he would refer any of the members, and hopes to do his part to bring members more business.

Kevin has a 3-member team that works with him.  They help clients make good, sound financial decisions to meet their goals.  They try to do that with advice and service, being transparent with the outcomes, risks and costs associated with it.  Merrill was started by Charlie Merrill 100 years ago and now has $2 trillion in client assets.  Referrals they are looking for usually involve someone in transition or with decisions that need to be made, such as retirement, the sale of a business, death, inheritance, or divorce.  One client said, “I don’t want to do a solo jump if I’m parachuting; I want to do a tandem jump with someone who has done it a thousand times.”  There are a lot of moving parts to a family’s wealth and we will tailor the portfolio to that family and to their goals.

Branson Butler explained Merrill Lynch’s discount brokerage arm, Merrill Lynch Edge.  It is primarily for someone just getting started saving or someone who wants to trade some stock on their own.  Typically they serve someone in the $5,000-$250,000 building phase before Kevin and his team take over.  They offer  financial solutions advisors and a call-center with 24/7 coverage.  There is a lot of opportunity to talk to someone or engage online.  Their self-directed platform is great for people who like to do their own trading.  Analytics show 2/3 of investors have some active trading they are doing on their own.  Merrill Edge offers low fees, great research capabilities and competitive technology.  In 2007, Barron’s ranked them among the best.  Kiplinger also rated them 4-Star, and rated them Best in Class in 7 categories.

Kevin shared that when you trade stocks there is something you don’t see called “good execution” and Merrill Lynch Edge is very good at that.  It is one thing to say you are paying a certain amount per share to trade a stock, but if you are incurring a spread in the market that you don’t see that is 4 or 5 times that, it really doesn’t make any difference.  That is where the firm is making their money.  He is very comfortable with the professional, fiduciary approach his firm takes.  If you have someone that might be a good fit for Merrill Lynch Edge, call his office and they will get them set up.

Tim Kuhn, a portfolio specialist with Richard Bernstein Advisors, shared about their background, their view of the Markets and why they maintain those views.  Richard Bernstein Advisors is an asset management firm out of New York that manages about $4 billion in assets.  Rich Bernstein worked as a Chief Investment Strategist for many years at Merrill Lynch and then founded RBA in 2009.  Rich wrote “the book” on investing:  Style Investing.  Rich has been extremely accurate with his market calls.  He is a top-down macro-analyst and created a process of analyzing 100+ data points in 40 countries to create their outlook.

For 2017, their outlook is Bullish (globally), similar to 2016, where Rich said the S&P 500 would be up double-digits, small-caps would lead the way and that no one would participate in the rally.  Equities are positioned to do very well.  This has a lot to do with cycles:  economic and business.  Economic cycles tend to be more pro-longed over several years, sometimes decades.  This cycle started in 2009 and they maintain will be one of the best and longest of their careers.  They consider that we are in the “8th inning” of this economic cycle.  We are well into the cycle, but the duration is not time-dependent; we could go into extra innings, there is a lot of game left to play.  There are still a lot of up-sides to this economic cycle.

Three indicators the Bull market is not in jeopardy: 1) sentiment – it is low, which is a good sign; investors haven’t embraced equities and are not buying aggressive stocks; 2) valuations – they contend that equity valuations are very fair; 3) yield curves (how much income you can get in 2-10 years on money you lend; they want a steep curve) – around the world yield curves are improving and healthy in the U.S.

The business cycle (profit cycle) is shorter in duration with more ups and downs, which is why you see market corrections, which are dictated by corporate earnings; RBA looks at corporate earnings in the S&P 500.  Profits have been improving every quarter since 4th quarter 2015 and are very healthy.  Corporate profits are one of the most important things you can look at to gauge whether to be bullish or not.  They think corporate profits will continue to improve throughout the remainder of 2017, which will drive equities higher.

The new administration is getting a lot of credit for the post-election rally, but there was a lot in place February 11, 2016, when the market bottomed, that were more important, from an investor’s point of view, than the election.  Politics are noise; there is a lot of grid-lock in Washington and not a lot gets done.  Other things are more important.  Fundamentally speaking, markets were poised to continue to rally.  However, pro-growth initiatives with this administration (stimulus like tax-reform, deregulation, and infrastructure spending) will positively impact their outlook.   If passed, this would be the first time in history that we had such stimulus during a period when that stimulus was not needed. Generally, you get stimulus like this in a recession.

Questions were asked about a sub-prime lending bubble or student-loan bubble that could impact this rally.  Tim said really the worry (recency bias) is that we will have another 2008, but we don’t have the same environment or lending standards in place that caused the credit crisis; there are many new regulations and a lot of de-leveraging of corporate balance sheets.  There will be another bubble somewhere.  There could be a 5% pull-back tomorrow, that is what markets do 5 times a year on average, but they are not expecting anything deeper.  There are things that could change their view overnight, such as:  a Fed Policy mistake, the strength of the U.S. dollar (if it is too strong, it makes earnings more difficult), or a Black Swan event, which you can’t predict.  We could have a student-loan bubble, but it won’t affect the markets like 2008; the size and scope is much smaller.

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