2006 4th Street
The Horizon Advisor Network Investylitics Committee met on the afternoon of Monday, February 6th. We were happy to have the opportunity to share ideas and review each team member’s research and outlook given the significant economic and market-shaping events that have taken place over the past few weeks.
On Wednesday, February 1st, the Federal Reserve Bank surprised no one by raising interest rates by a .25%. This rate hike had been communicated in advance by a number of Federal Reserve board members in interviews and speeches leading up to the meeting. This marks the eighth time that the Fed has raised rates in the last 11 months and brings the total interest rate hikes to 4 1/2% over that time.
The market seemed to take the news in stride. Chairman Jay Powell stated in his post-meeting press conference, that additional rate increases may be necessary, depending upon the future trajectory of inflation. He somewhat surprised the markets by stating that the disinflation process is beginning. In fact, he used the term disinflation many times during the press conference, which led the markets to believe that the Fed may be closer to pausing further interest rate increases in the near future. We will continue to monitor this going forward.
Economic indicators are giving us some mixed signals at the present time. This has led many economists including Larry Summers, who was previously Treasury Secretary under President Clinton and also Director of the National Economic Council under President Obama, to state that this is one of the most difficult economic landscapes to navigate that he has ever seen.
Most leading economic indicators have turned decidedly negative over the past 12 months, as you can see in the chart below. We can see a definite migration from green arrows, indicating positive economic growth, to red arrows from January 2022 to January 2023.
However, the jobs report, which was released on Friday, February 3rd, unexpectedly showed an increase of 517,000 new jobs. This greatly exceeded market expectations for a more modest addition of 188,000 jobs. There were also positive revisions to the prior two months showing an additional 71,000 jobs added. This dropped the unemployment rate to 3.4%, the lowest since the late 60s.
While the Biden administration is touting the job growth, less discussed is the fact that the Bureau of Labor Statistics made a “normal adjustment” to the population control data, which added approximately 810,000 jobs to the household survey. Without this adjustment, job growth would have been much lower, and likely more in line with ADP‘s private payroll report, which on Wednesday of the same week showed only 107,000 new jobs created. We will have to watch this report closely in the coming months to see where it tracks, and what it means for wage growth, an important component of future inflation.
In stark contrast to what we saw last year, both the global stock and bond markets have gotten off to a much stronger start this year. From a historical standpoint, this tends to point towards more positive returns for the balance of the calendar year. While we are encouraged by this, we believe that markets will likely continue to be prone to bouts of volatility, and we suggest that people use upticks in the market to both rebalance portfolios and to refill cash buckets for future short-term liquidity needs.
We also want to remind you that short-term, high-quality bonds and Treasury bills are now paying interest rates of 4 1/2% or higher. For people sitting on excess cash in the bank that is not earning much return, there are finally alternatives to consider. These can produce higher risk-adjusted returns than we have seen in many years. If you have questions about this, please reach out to your advisor.
The committee and its members stand ready to make further adjustments to our model portfolios if and when necessary. We are here to help you navigate the choppy and uneven economic waters we are all experiencing. As always, feel free to reach out to your advisor if you have specific questions about your unique situation. We are here to help. Thank you for your continued trust and support.
The views stated are not necessarily the opinion of Cetera 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.
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.