2006 4th Street
The committee met on the afternoon of March 8th to review the most recent economic and investment data, and to review the allocation strategies of the portfolios managed by the committee members. We are happy to report that all our model portfolios continue to outperform their risk adjusted benchmarks over the most recent one, three and five year periods of timThe markets have seen a pull back from their recent highs over the last several weeks. This is not surprising as the markets have moved up dramatically since late October, as the election outcomes became clearer, and as the rollout of the vaccines was imminent. Sectors of the market that have moved up rapidly since the market lows of late March 2020 were also the areas that pulled back the most recently. Technology, stay-at-home and emerging market stocks all pulled back 7-10%.
It seems that the catalyst for the recent pullback is a rise in interest rates sparked by fears of inflation over the next couple of years. Recent projections of economic growth from a number of economists and market strategists that the committee follows suggests that real GDP growth could be as much as 6-8% this year. To put this in perspective, we have not seen economic growth at this level in nearly forty years.
This is being fueled by a combination of factors including the continued rollout of the vaccines, as well as cases and hospitalizations continuing to drop across the United States. This should lead to the economy continuing to reopen, sparking an acceleration of economic activity. Additionally, the Federal Reserve Bank has pledged to keep borrowing costs low, and to continue purchasing $120B per month of both Treasury and mortgage bonds to support low interest rates in the bond market.
As mentioned last month, the Congressional Budget Office had already factored in much higher growth in U.S. economic activity and additional job growth prior to the passage of the American Recovery Act. This additional $1.9 trillion will throw additional fuel on the fire of an already strongly recovering economy. We shall see if this additional stimulus leads to higher inflation. We know that year over year comparisons will be against depressed levels of activity from the spring of 2020.
Adding to inflation fears, the ISM Manufacturing Reports showed a surge in growth. The manufacturing gauge rose to the highest level since February 2018. Anecdotal comments from participants showed supply chain constraints, material shortages and prices rising rapidly. See below:
Manufacturing PMI® at 60.8%
February 2021 Manufacturing ISM® Report on Business®
New Orders, Production & Employment Growing
Supplier Deliveries Slowing at Faster Rate; Backlog Growing
Raw Materials Inventories Contracting; Customers’ Inventories Too Low
Prices Increasing; Exports and Imports Growing
From a technical standpoint, the markets are bumping up against several lines of resistance. It is not unusual for the market to take a breather or to have some bouts of short-term volatility and pullback when facing this setup. We believe that the backdrop will remain constructive for the appreciation of risk assets such as stocks, commodities, and real estate over the cyclical horizon.
Against this backdrop, several of the committee members are looking at adjusting their model portfolios that would align them with the above economic outlook. This would include shortening bond maturities in the face of potentially rising interest rates and inflation. There may also be a higher allocation to value stocks which have lower prices than their growth brethren and would benefit from an accelerating economy, more international stocks which could benefit from a falling dollar, exposure to commodities which would benefit from increased demand for materials and supplies, and a potential to look at alternative assets that are not correlated to volatility in either the stock or bond markets. For clients in our discretionary models, you will see trade confirmations come through as adjustments are made.
The committee continues to work hard to meet the investment accumulation and income needs of our trusted friends and clients. We appreciate your confidence and support. As always, should you have any questions, please do not hesitate to reach out to your advisor. Thanks, and have a great day.
Jesse Hurst - Chair, Impel Wealth Management
Nathan Ollish - Impel Wealth Management
Clint Gautreau, Horizon Financial Group
Kevin Myers, ATL GlobalJoy Schlie, FHT Financial Advisors
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.