Small Stocks are "Melting Up" in May

Excerpt from Louis Navellier's Marketmail - 5/22/2018

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As the first-quarter earnings announcements wind down, the announcement of new dividend increases, stock buy-backs and new acquisitions have put a strong foundation under many stocks. In addition, the amount of stock outstanding continues to shrink, so there are fewer shares to buy. The main switch in allocations over the last month has been caused by a resurging U.S. dollar, which is causing many institutional investors to cut their allocations in multinational stocks as they focus on domestic stocks. As a result, the small-cap Russell 2000 has risen by 5% so far in May vs. just 2.4% for the S&P 500.

The 10-year Treasury bond has risen decisively above the 3% level to the highest yield in seven years. However, thanks to strong buy-back activity and positive analyst community reports, there is persistent institutional buying pressure, so every dip should be viewed as a buying opportunity. Since computers and algorithms tend to sell without thinking, this opens up plenty of buying opportunities most weeks.

In This Issue of Marketmail

Bryan Perry examines the likely market impact of a new trifecta of economic concerns: a rising dollar, spiking oil prices, and rising interest rates. Gary Alexander examines the latest data to expose another false alarm in the recent concern over "peak earnings. Ivan Martchev examines the recent decline in gold and silver prices in light of a rising U.S. dollar and gold buying in China and Russia. Jason Bodner focuses on the once-weak, now-strong Energy sector. In the end, I'll also look at the energy fundamentals, along with hopeful signs for 2nd and 3rd quarter GDP growth based on the Leading Indicators and other data.

Here Comes the Deficit

Written by:  Rich Farr, Chief Market Strategist for Bluestone Capital Management and Jim McGovern, Market Strategist for Bluestone Capital Management 

Bluestone Capital Management is the Sub-Advisor to the Cavalier Multi Strategy Fund



* Tax season ends and U.S. tax receipts tanked in early May.



Tax seasons is over folks and here comes the deficit spending.  We’re not sure why anyone would want to own U.S. Treasury Bonds when tax receipts are going down and federal spending is going up.   On that note, according to the U.S. Treasury, tax receipts are down -18.4% Y/Y through May 10th.  Furthermore, overall tax receipts slowed to +1.9% Calendar YTD (versus +3.6% at the end of April).  The decline in the month was led by Income Taxes, as Income and Employment Withholdings Taxes fell -16.7% Y/Y and slowed to +0.1% Calendar Y/Y (+1.8% Y/Y at the end of April).  Furthermore, Excise & Other Taxes declined -50.9% Y/Y and slowed to +29.4% Calendar YTD (versus +32.8% Y/Y at the end of April).  Conversely, Corporate Income Taxes increased +27.1% Y/Y but they are still down -18.3% Calendar Y/Y (-18.5% Y/Y at the end of April).



U.S. GDP:  Our GDP model points toward 3% Real GDP growth through 2018, but sees slightly slower growth in 2019.   Note that our model doesn’t factor in potential stimulus from tax reform or other policy proposals, so GDP could outperform our model.

U.S. Inflation:  U.S. inflation remains in an upward trend, and we continue to believe that wage inflation should turn higher as labor slack (particularly in prime working age groups) continues to decline.    Note that the Fed’s preferred inflation metric, the Core PCE Deflator, increased to +1.9% Y/Y in March.

U.S. Federal Reserve:  We still believe two additional rate hikes will happen in 2018 and that the FOMC will become increasingly more data-dependent as the year progresses.

U.S. Treasuries:  With inflationary pressures slowly building, and Real GDP trending toward +3.0%, we believe 10-year U.S. Treasury Yields will continue to trend higher and we would expect to see yields approach 3.25% by year end 2018. 

U.S. Equities and Earnings:  S&P 500 operating earnings are rising materially, but the question remains, will the market put a 20 P/E multiple on forward earnings?  We think a 20 forward multiple is aggressive, but 18.5 may not be.   Our SPX target is for an 18.5x P/E on 2019 forward earnings of $162, bringing our 2018 SPX target to 3,000).  We continue to favor the homebuilders, despite higher interest rates given the demographic tailwind and lack of inventory.   We also prefer financials given expectations for economic growth and our expectation for an improving (steepening) yield curve.

Argentina:  Argentina’s overall economic condition appears to still be on an improving track, but data came in weaker recently as Industrial Production slowed to +1.2% Y/Y (from +5.3%), Consumer Confidence slipped to 40 from 43.8, and Construction Activity slowed to +8.3% from +16.6%.  Any signs of weakness are a problem when you are dealing with 7.2% unemployment and 25.4% inflation.

Brazil:  Unemployment has been steadily picking up in 2018 (13.1% in March versus 11.8% in December), which raises some concerns.  However, the unemployment data is not seasonally adjusted and has been improving Y/Y.  Also, Retail Sales accelerated to +6.5% Y/Y in March and Personal Loan Defaults improved in March (to 5.0% from 5.1%).  Overall, Brazil’s data have been mixed in 2018, as PMI’s improve but Industrial Production slows.   Of all the major global bond markets, Brazilian 10-year bond yields are the richest in the world at 10.07% which is attractive given that tax receipts are up 6.7% Y/Y (so long as the money is coming in, they can pay the coupon).  As such, we remain bullish on Brazil 10-Year Sovereign Bonds.

Canada: Canada’s housing market is still on the radar, as building permits and housing starts weaken but Canada’s monthly GDP rebounded in February (+0.4% M/M to +3.0% Y/Y).  Unemployment is still trending lower, Consumer Confidence remains at high levels, manufacturing PMI’s remain strong, and retail sales are elevated (+3.5% Y/Y in February).

Mexico: Mexico’s GDP has been in a slowing trend since Q1 2017 (+3.3% then, now +1.2% Y/Y), Industrial Production is now down -3.7% Y/Y, and PMI’s slowed in April, thus Mexico remains on our macro risk watch.  The Mexican Central Bank has been increasing interest rates since late 2015 (mainly because of fear of dollar weakness).   Consumer Confidence has been trending slightly downward since September (although improved in April).  Meanwhile, Exports are up +12.5% Y/Y, Retail Sales improved to +1.2% Y/Y, and unemployment improved to 2.9%.

Venezuela: We will leave this as a placeholder in the event that Venezuela ever becomes an investible market again.  We are hopeful …


United Kingdom:  The U.K. economy has been reasonably resilient throughout the BREXIT process (PMI’s mostly better in April) and therefore the Bank of England has been raising rates.  But now inflation is slowing, Consumer Confidence has remained negative, Retail Sales have been slowing, and home prices have begun to turn lower in London.  

European Union:  The stronger Euro may now be a problem for Mario Draghi as CPI has been in a slowing trend for several months.   Not to mention, Industrial Production slowed to +2.9% Y/Y, Economic Sentiment is turning lower, and PMI’s have turned back from recent highs.   We think the idea of an ECB hike within the next year is basically out the window, and as such we remain bullish on the Euro STOXX 50 Index, as well as European Financials. 

European Central Banks:  The ECB is slowly removing accommodation and will likely end its asset purchases by year end.  But Mario Draghi has given no indication about raising rates and the recent decline in CPI will give them even further pause for doing so.  We will watch to see if current ECB tapering has any meaningful impact on the economic outlook.

Eastern Europe: We continue to believe risks remain for Eastern Europe given high Debt/GDP levels, most notably Cyprus (104%), Croatia (88%, up from 66% at the end of 2013), and Slovenia (81%).   Yet, economic data have been robust this year across most of Eastern Europe.

South Africa:  Now that Zuma’s out, Confidence (Business and Consumer) appears to be on an up-swing, PMI’s have turned further positive, Retail Sales accelerated to +4.9% Y/Y, and Inflation has cooled.  But these improvements are going to need to get significantly stronger to crush unemployment (26.7% in Q4).

Turkey:  What a mess … the currency is deteriorating, inflation is accelerating and PMI’s turned negative. 


Australia:  The RBA has cut rates twice in the past year and Australian data is mixed.  So far, Unemployment Rate remains at 5.5%, Retail Sales increased +3.1% Y/Y in March, PMIs indicate solid growth, Auto Sales are up +6.7% Y/Y in December, and business and consumer confidence have been strong.    Conversely, we are starting to see mixed data in the housing market (although private sales were down -6.1% M/M, building approvals were up +2.6% M/M).  We remain neutral on Australia at this time, on concerns about China exposure but so far China is still posting strong data.

China:   With China cracking down on shadow banking, pollution, industrial overcapacity, and removing migrant workers from its cities, we expect China GDP to continue to trend lower and we are monitoring the situation closely.   PMI’s continue to indicate growth, but are now in a clear slowing trend as backlogs and new orders weaken, Industrial Profits slowed to +11.6% in March, and Durable Goods Orders fell 12% M/M in February.  Home Prices are up +5.4% Y/Y (half the rate of change from a year ago). However, CPI slowed to +2.1% Y/Y in April, Retail Sales are up +10.1% Y/Y, and Industrial Production is up +6.0% Y/Y thus far in 2018.  We are watching for further signs of stress within China’s credit and housing markets.

India:  Indian economic activity appears to have recovered nicely since the new Goods and Services Tax (GST) was implemented as Commercial Credit accelerated to +12.6% Y/Y, inflation appears to moderated, and PMI’s improved slightly in April. However, Industrial Production slowed to +4.4% Y/Y in March and Exports are down -0.7% Y/Y.

Indonesia:  Indonesia’s GDP and Private Consumption Expenditures have been stable at 5% Y/Y, Consumer Confidence has been stable, Manufacturing PMI has been stable in the 49-51 range for a year, Retail Sales are up +3.4% Y/Y, and Exports are up +6.1%.  However, Industrial Production is negative and CPI ticked higher in March.

Japan:  Overall, we remain bullish on Japan given that Japan’s economic activity remains in an improving trend: unemployment remains low (2.5% in March), Industrial Production is up +2.2% Y/Y, Retail Trade is up +1.0% Y/Y, PMI’s improved in April (but consumer confidence slipped), and Exports are up +1.8% Y/Y.

RussiaThe Russian economy isn’t setting the world afire, but GDP came in at +1.5% in 2017, despite Q4 being weaker than expected at +0.9% Y/Y, Services PMI jumped to 55.5 in April, and manufacturing PMI remains in an improving trend (+0.7 points to 51.3 in April).  Overall, economic data continue to suggest economic growth, as Retail Sales were up +4.2% Y/Y in March, Real Wages are up +6.5% Y/Y, Unemployment is improving, Industrial Production is up +1.0% Y/Y, and exports are up +21% Y/Y despite sanctions.  Meanwhile, Core CPI is muted at +1.3% Y/Y (weekly CPI as of May 7), which has allowed the Bank of Russia to remain accommodative.   Russian equities remain among the cheapest in the industrialized world and we remain bullish. 

South Korea:  While the world looks forward to peace on the Korean Peninsula, we are keeping an eye on trade data into China, which improved in March.   Overall, SK is beginning to show signs of slowing post-Olympics (imports are slowing, Industrial Production is negative, Consumer Confidence has been declining since November, and the Nikkei South Korea PMI has been below ‘50’ for two months in a row).





Source: Bloomberg


Source: Bloomberg


Source: Bloomberg


Source: Bloomberg


Source: Bloomberg


Source: Bloomberg


 Source: Bloomberg

Source: Bloomberg

Market Mood Turns Up Despite News that Once Seemed "Bad"

Excerpt from Louis Navellier's Marketmail - 5/15/2018

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Last week, my headline was "The Best Earnings in 7+ Years Deserve a Better Market Than This!" and the market must have been reading what we wrote. The Dow rose seven days in a row, rising 2.34% for the week. The S&P 500 rose 2.41%, the Russell 2000 rose 2.63%, and NASDAQ rose 2.68% last week.

First-quarter announcement season is winding down and the S&P 500 has so far posted 25% average annual earnings growth and 8.3% average annual sales growth. First-quarter S&P 500 earnings have been an average 7.1% better than analysts' consensus expectation, so it has been a stunning earnings season.

On Tuesday, President Trump announced that the U.S. was pulling out of the nuclear inspection deal with Iran. The market initially fell, but then quickly resumed rising. No matter what other "bad" news came out, the market kept rising. With the underlying sales and earnings growth of the stock market so strong, I wonder what the financial media will cook up next to try to spook investors into selling stocks..

Despite Monday's Retest, April Should be a Strong Month

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April 3, 2018 - by Louis Navellier


The S&P 500 has now retested its lows three times and bounced back, but NASDAQ had yet to test its February 8 lows - until yesterday. I know yesterday felt like a stomach-churning roller-coast ride, but all that's happening is that NASDAQ is retesting its February 8 low of 6,777. Several of the leading tech stocks are being hit hard, including most of the FAANG stocks, as well as the "driverless car" problem hitting Tesla and Nvidia (which I'll discuss later on). As a result, NASDAQ may continue to test its lows later this week, but many tech stocks are also set to post strong first-quarter earnings in the upcoming weeks. Until then, the market is not always liquid, so these "air pockets" can emerge. 

One encouraging point is that the market picked up in the last two hours on Monday - that's the opposite of the past two weeks, when the market tended to fall off sharply in the last two hours of the trading day. Yesterday, the Dow was down 750 points around 2:00 pm, but it rallied nearly 300 points in the last two hours.

Looking forward, April is seasonally a very strong month. According to Bespoke Investment Group, April is the strongest month over the last 50 years, with an average 2.04% gain. Over the last 20 years, April has done even better, averaging +2.39%, but in those years April ranks #2 to October, which averaged 2.49%. 

Looking backward, the first quarter was volatile but essentially flat, with the S&P 500 down 1.2% and NASDAQ up 1.0%, but April should look better. As trading volume perks up in April, I expect stocks to surge due to an onslaught of stunning first-quarter sales and earnings announcements, beginning soon!


Some Welcome Good News Turns the Market Around

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March 13, 2018 - by Louis Navellier

Last week, the S&P 500 rose 3.54%, the Dow rose 3.25%, and NASDAQ set a new all-time high. There is no doubt that buying pressure by institutional investors in fundamentally superior stocks was behind last week's strength, which bodes well for quarter-ending window dressing in the upcoming weeks.

The Friday jobs report gave the market a big boost, pushing the Dow up 440 points after the Labor Department announced that 313,000 payroll jobs were created in February, substantially above the consensus estimate of 205,000. Also bullish was that December and January's payrolls were revised up by a cumulative 54,000 jobs, so an average of 242,000 jobs have been created in each of the past three months. The labor force participation rose to 63% in February, up from 62.7% as more workers continue to enter the labor force. As a result, the unemployment rate remained at 4.1% for the fifth straight month. 

The news that North Korea would suspend nuclear testing and hold talks on denuclearization with the U.S. is also welcome news; but the hopes of a successful resolution is premature, since previous talks with North Korea have come to nothing. However, President Trump has put the U.S. in a strong negotiating position with its increasing military buildup and sanctions, so there is hope of an eventual successful resolution, even though almost all experts (including President Trump himself) are skeptical.

Top Themes for The Week (02/04/2018)



Last week's 4% equity market selloff was accompanied by a spike in interest rates, volatility, and correlation. Those who followed our recommendation to be long VXX until it is solidly above $30 saw a quick 19.1% gain this week and those who positioned for higher SPX implied correlation with reverse dispersion trades or correlation swaps discussed in our 2018 outlook, also saw large gains with 3-month  SPX Top-100 implied correlation going from 22.7% to 32.6% on the week. The graph below shows S&P e-emini futures (ES1) in white, I-Path S&P 500 VIX Short-term futures ETF (VXX) in orange, and the 10-year yield index (TNX) in green over the last 5 days:

 Source: Bloomberg

Source: Bloomberg

Among the characteristics of this selloff were:

  1. Initial complacency, relatively low skew, and volatility selling earlier in the week where VXX was sold down to $28 as S&P seemed to initially stabilize), probably exacerbating the vol super-spike on Friday.  VIX options volume printed at an amazing 4.34mm contracts on Friday with 597k of the Feb 25 calls and 533k of the March 25 calls trading and the VVIX was up 18.7% on the day.  Volatility spreads such as the VXN/VIX and VXXLE/VIX had already closed at wide levels (6.44 and 8.32) going into the week and collapsed to 3.35 and 5.90 given the bigger vol demand for the VIX.   
  2. Bad response to rising interest rates/inflation fears, especially after the FOMC minutes and the higher than expected average hourly earnings Friday. 
  3. We had bad earnings reactions in several high-profile US names (AAPL -4.3%, GOOGL -5.3%, XOM -5.1% on earnings) as well as Europe which offset the positive news from AMZN (+2.9%). 
  4. The Nunes memo that questions the methods the FBI and Justice Department used to get a warrant to wiretap Carter Page was another negative Friday. 
  5. Underperformance of cyclical and high-beta sectors. The 6.5% rout in Energy (XLE) in the past week was an example of an exit from cyclical sectors that included Materials (XLB -5.7%)  and Semiconductors (SMH -4.7%) challenging the consensus view going into this year of positioning for "synchronized global growth." We had made a high conviction call for clients to get out of the high-beta factor two weeks ago and this worked well with SPHB (S&P high beta) underperforming SPLV (S&P low volatility) by another 169 bps on the week in addition to last week's 90 bp underperformance. 
  6. Healthcare had a sharp selloff, with XLV down 5.1% on the week. On Tuesday, Express Scripts, Cigna, Anthem, Mylan, and United Healthcare were all down over 3% after AMZN said it will work with BRK/B and JPM to form a non-profit providing healthcare to their employees with a goal of cutting cost. The escalating cost of healthcare was discussed by Warren Buffett and is making the electorate angry ahead of the mid-term elections, and it can again re-surface as a popular topic. Several healthcare analysts incorrectly defended the stocks that were down but we took the other side this week. If Amazon, for example, offers healthcare to their prime members at a discount and gets even a small percentage to sign up, this could be extremely disruptive and affect healthcare valuations. This week we will get a fair amount of high profile healthcare and biotech earnings with Bristol Myers on Monday, Gilead and Allergan on Tuesday, GlaxoSmithKline, Humana, and Sanofi on Wednesday and Regeneron, Alexion, CVS, and Cardinal Health on Thursday. 
  7. No asset class to hide as bonds, commodities, and real estate sold off with equities with increasing cross-asset correlation adding to the increase in stock correlation to increase portfolio risk. This can become problematic for those relying on diversification instead of explicit hedging for risk reduction in their portfolios, including balanced funds and risk-parity strategies, as well as any advisor implementing a strategy exclusively with long positions in ETFs. Also note that high yield (HYG) was down more in price than intermediate treasuries (IEF). 

S&P futures have broken below their 20-day moving average for the first time since November and broke down below support in the 2,760 area. If there is no bounce on Monday, or a very weak bounce to a lower high,  the next support level to target could be as low as 2,698/2,701 on continuing long liquidation (see chart below).  If there is a bounce in S&P, expect a quick pullback in the VIX/VXX from elevated levels.

 Source: Bloomberg

Source: Bloomberg



Friday's average hourly earnings data actually steepened the US Treasury 5s/30s yield curve, which was a break with the prior strong flattening trend. The 19 bp rise in 10 year yields on the week was much higher than anything we could have imagined in any scenario and the bond market seems to have over-reacted to the actual news. We believe FOMC members are still set for a central scenario of three hikes this year and will not over-react to one employment number. Those who follow the Fed know that it has started to seriously look at the VIX and does not want to de-stabilize the system.  Adding to worries, the CBO said last week that the U.S. may run the risk of default without a debt-ceiling increase in the first half of March. T-bills maturing March 8th have had a risk premium priced into them and have yielded more than longer-term bills, creating a "hump" in the short-term yield curve.  

The rise in interest rates has hammered "income" areas of the market such as XLU, VNQ, USMV, and IYR which saw net outflows last week. These, along with other more "safe" and low volatility areas in the US seem better risk/reward here relative to high beta, cyclical, and international exposures. 

Implied yields in short-term cash management strategies such as SPX boxes and rev/cons continue to be attractive with very short times to expiration, especially for those who fear interest rate and credit spread risk and we have been active in this space. For example, the March SPX 1000-point box traded last week at an implied 2.19% annualized yield for a 46-day instrument guaranteed by the OCC compared to a 2.14% yield on 2-year notes and a 1.78% yield on NEAR (I-Shares Short Maturity Bond). 

We view the Nunes memo as another step in the escalation of US political risk. The rout in precious metals after Friday's inflation data seems excessive to us, especially in SLV (-4.6% on the week) and GDX (-5.9%) for which higher political risk, higher volatility, and bad news on bitcoin (CBOE Bitcoin futures -22% this week)  should eventually offset the negative impact of higher real interest rates. In addition to positioning long SLV and GDX in ETFs, buy/writes and OTM call ratio spreads can be considered with the recent uptick in implied volatility on OTM calls in metals and commodities in general.

In Europe, Deutsche Bank (ADR: DB), a name in which we had continuously recommended being long volatility, was down 12.4% after revenues were the lowest in 7 years. Note that 5-day and 20-day historical volatility in DB was 73.9% and 41.3% versus the DB March 18 puts coming into the week at 33.9% implied vol, highlighting the opportunities in US-listed options on ADRs, which we believe will continue.  Despite the DB rout, the SX7E (Banks) is still at the highest relative level versus the SX5E since August, as Italian and Spanish banks have rallied and many have been rotating to sectors benefitting from higher interest rates and not hurt too much by the stronger euro. 

Other European fundamental news has also been negative this week including Siemens which was down over 6% in 2 days. The German DAX which was considered a poster-child of “synchronized global growth” and a large over-weight in many portfolios because of their over-weight to Europe is now down 1% YTD, badly lagging SPX as we expected in our 2018 outlook and EWI and EWP were also down hard after a prolonged rally. 

Other areas in international markets that had been over-weighted and crowed going into 2018 on are also lagging SPY, including a selloff in EEM, down 5.8% on the week and INDA down 7%.

An Old Adage for an Out-Of-Date Way of Retirement Planning

Maybe you’ve heard this old retirement planning rule of thumb before? Take your age and subtract it from 100. The remaining number represents the percentage you should have invested in equities. Your age then is what you should have in bonds. So if you’re 45, your portfolio should be 65% equities and 45% in fixed income holdings.

As rules of thumb go, it’s not the worst. It’s straightforward and very easy to follow. And, frankly, if an investor has no other guidance, at least it has them thinking about a glide path, whether they know it or not.

The problem is, like many old adages, it’s just that, old, and not truly responsive to the challenges of today’s markets or adequate for the realities of today’s investors. There are many factors that should have us all looking very closely at the efficacy of this dated thinking.

First, people are living longer and working well into their ‘golden years.’ Some are doing so out of a personal desire to keep working and are fortunate to be healthy enough to do so. Others, however, must keep working out of financial necessity to not touch their retirement savings or take Social Security too early.

Second, and this relates to that last group, many investors are playing catch-up in their retirement savings. There are myriad reasons for this, from crippling medical bills or a costly divorce to wiped out portfolios from the Great Recession or just a late start on a savings and investment plan. Regardless of the reason, the reality is that many 50-60 year-olds may need to look at their investments as if they were decades younger.

Third, those fixed-income positions may not be as safe and secure as many believe. We’ve seen just in the past week-plus since the election  of a new U.S. President that the bond market can and does move quickly. And, as our friends at Beaumont Capital Management  (sub-advisor on the Cavalier Tactical Rotation and Global Opportunities funds) have written about, “Bonds Have Bear Markets Too! ” The clouds may be gathering over the bond market now and those closest to retirement age, with the largest portion of their portfolios invested bonds, could be most vulnerable to sizeable losses.

Some advice may be timeless, and useful across the ages. The “Subtract-your-age-from-100” portfolio rule of thumb may not be one of them. Our industry must look at these old ways of thinking and test them against the realities of today’s volatile and uncertain markets, and the often challenging situations of today’s investors.


©2018 Cavalier Investments, LLC is a Registered Investment Adviser.
Information and recommendations contained in Cavalier’s market commentaries and writings are of a general nature and are provided solely for the use of Cavalier its clients and prospective clients. This content is not to be reproduced, copied or made available to others without the expressed written consent of Cavalier. These materials reflect the opinion of Cavalier on the date of production and are subject to change at any time without notice. Due to various factors, including changing market conditions or tax laws, the content may no longer be reflective of current opinions or positions. Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, Cavalier does not warrant the accuracy of this information. The information provided herein is for information purposes only and does not constitute financial, investment, tax or legal advice. Investment advice can be provided only after the delivery of Cavalier’s Brochure and Brochure Supplement (Form ADV Part 2A&B) and once a properly executed investment advisory agreement has been entered into by the client and Cavalier. All investments are subject to risks. Investments in bonds and bond funds are subject to interest rate, credit and inflation risk.

Are You Prepared for the ‘Great Wealth Transfer’?

Possibly the single largest wealth transfer in history is now under way. And as a result, so is one of the greatest shifts in wealth management.

The Baby Boom Generation has started to pass along its accumulated assets to their children and grandchildren, a process that will continue for, at least, the next few decades. When done, an estimated $30 trillion  in wealth will be transferred from one generation to the next.

With this tremendous movement of assets comes a challenging moment for many financial advisors. The key is earning the loyalty of that next generation, be they Generation X or Millennial heirs, because if recent studies are correct, most children will promptly fire their parents’ advisors.

According to an InvestmentNews survey , 66% of children fire their parents’ financial advisor after they inherit their parents’ wealth.

While the perception is that Gen Xers may be more inclined to drop their parents’ advisors than Millennials, a recent CNBC article  notes that “Millennials most certainly don’t want to use their parents’ financial advisor, due to issues of relatability. Every child wants to rebel a bit.”

Not only are their Baby Boomer clients growing older, but the financial advice industry is aging as well, and many younger heirs and their parents’ advisors may have a hard time relating across the generational divide. On top of relatability issues, many of those heirs may also want to enhance their wealth management experience through a combination of self-directed digital tools, while still having access to human advisors.

Some advisory firms have taken steps to meet this challenge by hiring younger advisors and adding robo-advisor platforms with lower minimums. Others have begun building relationships with the adult children of clients by having them participate in family meetings and helping them work through their own financial issues, like managing student loan debt and buying their first home.

Whether an advisor’s clients represent an older or younger generation, it is important to uncover the expectations of both parents and their adult children. Now is the time for advisors to take on the opportunity to learn more about each generations’ wants, needs, and goals, improve their service to existing clients, and make themselves more attractive to the next generation of clients.



©2018 Cavalier Investments, LLC is a Registered Investment Adviser.
Information and recommendations contained in Cavalier’s market commentaries and writings are of a general nature and are provided solely for the use of Cavalier its clients and prospective clients. This content is not to be reproduced, copied or made available to others without the expressed written consent of Cavalier. These materials reflect the opinion of Cavalier on the date of production and are subject to change at any time without notice. Due to various factors, including changing market conditions or tax laws, the content may no longer be reflective of current opinions or positions. Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, Cavalier does not warrant the accuracy of this information. The information provided herein is for information purposes only and does not constitute financial, investment, tax or legal advice. Investment advice can be provided only after the delivery of Cavalier’s Brochure and Brochure Supplement (Form ADV Part 2A&B) and once a properly executed investment advisory agreement has been entered into by the client and Cavalier. All investments are subject to risks. Investments in bonds and bond funds are subject to interest rate, credit and inflation risk.