July 2022 Investylitics

Horizon Advisor Network Investment Committee July 11, 2022

The Investylitics Committee of Horizon Advisor Network met on the afternoon of Monday, July 11th to review the economic and investment landscape, as well as the performance and allocation of our model portfolios. While disappointed with the absolute returns that we have experienced in both the stock and bond markets this year, we are pleased that our portfolios have performed in line with or better than their risk adjusted, index-based benchmarks over the last one, three and five years.

As you will likely see from your June 30th statements, the first half of calendar year ‘22 was extremely challenging. It was marked by multiple bouts of downward volatility in the stock and bond markets, both in the US and globally. This volatility was sparked initially by the Federal Reserve Bank shifting policy to aggressively fight rising and persistent inflation. Subsequent bouts were caused by Russia’s invasion of Ukraine, substantial increases in the price of gasoline and groceries, as well as continuing supply chain constraints, which were recently exacerbated by new rounds of Covid shutdowns in Shanghai China, one of the largest shipping ports in the world. 

As you can see in the chart below, this led to the worst period of performance for a typical 60% stock, 40% bond allocation, that we have seen in more than 45 years. In addition to the downturns that we saw in the stock market, which as you all know is not uncommon, the biggest difference this year is that the Fed has been raising interest rates to try to curb inflation which has stubbornly ratcheted higher throughout the year. These interest rate increases have led to double digit drops in the bond market, leaving investors little place to hide.

Source: Charlie Bilello

Over the last few decades, we have grown accustomed to the central bank cutting interest rates to spur economic activity each time we have gone through a bout of volatility or an economic downturn. We saw this play out multiple times over the last twenty years including after the 9/11 attacks, the failure of AIG/Lehman Brothers in September 2008, and most recently during the initial Covid shutdowns in the spring of 2020. These interest rate cuts have also led to gains in bonds, helping offset losses from the stock portion of portfolios.

All of this has led to significant recession concerns. We have seen both consumer sentiment and CEO confidence drop significantly this year. As you can see below, Google searches for the word “recession” have risen dramatically and we will soon find out if we had a second quarter in a row of negative GDP growth, something that is often associated with recessions.

It is interesting to note that we have seen the job market continue to exhibit strength over the last several months and the unemployment rate has remained constant at 3.6%. The number of jobs created continue to exceed expectations, and we also know that there are nearly two jobs available for every one person looking for work. This is a double edge sword, as it is also leading to wage increases that may help individuals but put upward pressure on inflation. 

The committee will continue to watch the markets and the economy, and we stand ready to adjust our model portfolios as needed for the benefit of you, our trusted friends and clients. We would like to remind you that from a historical standpoint, downturns of more than 20% in the stock market have typically led to attractive buying opportunities and future returns for investors who are both patient and opportunistic.

We also want to point out that this is the seventh time since the beginning of calendar year 2010 that we have seen the stock market drop more than 10%. As George Harrison told us, This Too Shall Pass, although nobody knows exactly when. We are here to help you navigate these difficult and unusual times. Should you have questions about your specific situation, please do not hesitate to reach out to your financial advisor. We are here to help you. 

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.

Sincerely,

Jesse W. Hurst, CFP®, AIF®
CERTIFIED FINANCIAL PLANNERTM
Financial 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.