2006 4th Street
The Horizon Advisor Network Investylitics committee met on the afternoon of Monday, February 7th to review the allocation and performance of our model portfolios, and to discuss the economic and investment landscape we are navigating on behalf of our clients. We are pleased to report that our model portfolios continue to track with their index-based, risk-adjusted benchmarks. We are happy with this given the volatility we have experienced recently, along with a divergence in the performance of various asset classes.
The new calendar year also brought a new market downturn, the third one we have experienced over the last six months. Previous drops were driven by fears of slowing growth in China and uncertainty around their real estate markets, disruptions in supply chains, and news of the Omicron variant of COVID-19, which came just as families were gathering to celebrate the Thanksgiving holiday.
This latest round was primarily driven by inflation continuing to move higher. This has caused the Federal Reserve Bank to change its narrative and indicate that it will move much more aggressively to fight these price pressures. The Fed will stop buying Treasury and mortgage bonds by the end of March, at which point they are also expected to embark on a campaign of raising interest rates. This has led to pressure in the bond market, as well as a sell-off and rotation in the stock market.
We know that volatility is never fun. To help put this in perspective, we offer the following two views of the market over the last 10 years. The first shows an ongoing, upward sloping growth of the markets over that time.
Our second graph shows the yearly volatility the markets have experienced since 2010. When put in this context, you can see that this recent downturn is characteristic of longer-term patterns. We want to remind you that in order to get the long-term growth of the first chart, you must stay invested through the news and the noise that comes regularly in our financial markets. Simply stated, you cannot stop the compounding.
Even though inflation is running at 40-year highs, the committee believes that there are reasons to be cautiously optimistic going forward. It appears that we are in a midcycle economic expansion. From a historical basis, this could last several years. During this part of the economic cycle, returns typically moderate but are still positive with an uptick in volatility.
We are in the middle of corporate earnings season, and overall, the reports are coming in much better than expected. Corporate profits could rise nearly 30% on a year over a year basis. It appears that corporate profit margins are holding up, as companies have been able to pass along price increases they are experiencing in both materials and labor to consumers. We will continue to watch for signs of this slowing in the future.
Additionally, job growth came in well ahead of expectations last week. After a disappointing ADP report that showed the private sector had lost jobs, expectations had been ratcheted down. However, the economy surprisingly created 467,000 new jobs. On top of this, the previous two months were revised to show nearly 700,000 more jobs were created than originally reported. The unemployment rate rose slightly to 4%, but this was due to more people coming back into the work force, which is good news for employers.
In times like this it is easy to let daily headlines, social media posts, and 24-hour cable news create fear and anxiety. It is important to remember that the media’s goal is not to educate you, but to keep you tuned in. We also know from experience that the media, despite the screaming headlines, is oftentimes wrong. Case in point…
We think that a far better choice is to create a financial plan to help you reach your goals. This should be your North Star. You should then build an asset allocation model that is consistent with those goals and your risk profile, and then stay true and disciplined to your plan. We are here to help answer questions and guide you along the way.
Please feel free to share this report friends and family. Also, please reach out to your advisor if you have any questions about your financial situation. We appreciate your ongoing trust and relationship; it is what drives us every day.
The views stated are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
Jesse Hurst - Chair, Impel Wealth Management
Nathan Ollish - Impel Wealth Management
Clint Gautreau, Horizon Financial Group
Kevin Myers, ATL GlobalJoy Schlie, FHT Financial Advisors
Dusty Green, Spencer Financial Inc.
Sincerely,Jesse W. Hurst, CFP®, AIF®CERTIFIED FINANCIAL PLANNERTMFinancial Advisor
*Award Recipient Jesse Hurst
*The 2021 ranking of the Forbes’ Best–in–State Wealth Advisors1 list was developed by SHOOK Research and is based on in–person and telephone due–diligence meetings to evaluate each advisor qualitatively and on a ranking algorithm that includes client retention, industry experience, review of compliance records, firm nominations, and quantitative criteria (including assets under management and revenue generated for their firms). Overall, approximately 32,725 advisors were considered, and 5,000 (approximately 15.3 percent of candidates) were recognized. The full methodology2 that Forbes developed in partnership with SHOOK Research is available at www.forbes.com.
1 This recognition and the due–diligence process conducted are not indicative of the advisor's future performance. Your experience may vary. Winners are organized and ranked by state. Some states may have more advisors than others. You are encouraged to conduct your own research to determine if the advisor is right for you.
2 Portfolio performance is not a criterion due to varying client objectives and lack of audited data. SHOOK does not receive a fee in exchange for rankings.