July Investylitics

Horizon Advisor Network Investment Committee July 10, 2023

The Horizon Advisor Network Investylitics Committee met on the afternoon of Monday, July 10th. All team members were present to share their thoughts and insights as it relates to recent investment research and commentaries. There continues to be a number of economic and political events driving the investment markets and sentiment at the present time.

It is interesting to note that just over a month ago, everyone was focused on Capitol Hill and the debt ceiling debate. There were fears that partisan bickering would lead to an economic and investment uncertainty. With this now in the rearview mirror, investors have returned to worrying about inflation, interest rates, the Federal Reserve Bank, and the potential for a future recession. Against this backdrop, the market has continued to climb a “wall of worry” and move higher.

As we came into the year, most economists and market strategists were expecting a very difficult and volatile year, given that many forward-looking indicators were pointing towards a future recession. However, continuing gains in the labor markets, and surprisingly strong consumer spending, which is continuing to be buoyed by remaining reserves from the pandemic stimulus, has allowed the economy to continue to grow, avoiding recession thus far.

The stock market has continued to advance, rising by double digits in the first half of the year. Much of this gain has been led by a few mega-cap tech companies strongly influenced by the future promise of artificial intelligence, AI. The very narrow gains of the first five months of the year have broadened out slightly in the last 30 days. We will continue to watch if this trend continues into the future. 

As you can see in the chart above, last week’s jobs report showed that the economy produced the fewest number of jobs since December 2020. There were also negative revisions to the two previous months. However, the unemployment rate remained near historic lows at 3.6%. There is a strong expectation that job growth will continue to moderate in the face of slower manufacturing and consumer spending over the back half of the year.

Attention will now turn to this week’s consumer and producer inflation reports. While inflation has dropped from above 9% last June, to 4% in May, the Fed has expressed concern that core inflation, which excludes food and energy, has remained stubbornly high. As you can see in our next chart, the core rate has now been higher than the headline rate for several months. The information from these reports will help determine whether the Federal Reserve Bank raises interest rates at its meeting at the end of the month. The Fed paused its interest rate increase campaign in early June. However, their economic projections indicated two more rate increases before the end of the year. We shall see if the actual economic data supports this outlook.

We would like to remind you that as interest rates have increased dramatically over the last year, the yield on the bond portion of your portfolio is now higher than it has been in more than a decade. This means that we are earning reasonable rates of return on an asset class that historically has had substantially less volatility than the equity portion of your portfolio. 

The market has rebounded strongly since early March. At that time, it sold off due to fears of failures in the regional banking system. This upturn gives us the opportunity to do two behavioral things that have historically led to better investor outcomes. The first is to re-balance your portfolio to make certain that it stays in line with your risk profile. This discipline allows us to sell high and buy low.

The second strategy is to take some profits from your portfolio by selling high to cover any liquidity and cashflow needs that you may have over the next 6 to 12 months. Having sufficient liquidity allows us to weather the inevitable ups and downs of the market, without fear of having to sell when markets are low or going through periods of volatility.

The Investylitics team appreciates your continued confidence in our research and our model portfolios. Remember, we are here for you if you have any questions about your unique situation. Please do not hesitate to call your advisor. Thanks, and have a great day.

© 2023 Jesse Hurst

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.

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.