2006 4th Street
The Horizon Advisor Network Investylitics Committee met on the afternoon of Monday, March 13th. We were happy to have all team members in attendance and to have the opportunity to review recent economic and investment research, especially in light of the significant market-shaping events that have taken place over the past few days.
A week ago, all eyes were on the Federal Reserve Bank Chairman Jerome Powell’s two days of Congressional testimony. Based on his narrative, there was an expectation that the Fed would continue raising interest rates and leave them “higher for longer” due to persistent inflation that has not come down as quickly as hoped. This had driven short-term rates significantly higher over the last 30 days with two-year treasury rates moving above 5% for the first time since 2007.
All of that changed very quickly on Thursday and Friday as concerns about the banking system came to light. These two niche banks in question served a much smaller and more targeted client base than most other commercial banks. With memories of the 2008 failures of Bear Stearns, AIG, and Lehman Brothers still in people’s minds, concerns rose about whether this would lead to a more broad-based contagion. As a result, the Fed, the Treasury Department, and the FDIC stepped in to provide a safety net to depositors while working to maintain confidence in the US banking system.
This caused interest rates to crater and significantly reduced thoughts that the Fed would further monetary conditions as aggressively as they had stated just a few days earlier. This led interest rates on the two-year treasury to drop by more than 20% in just a few days. Such a sharp move had not been seen since October 1987.
Since last summer, we have seen multiple bouts of global volatility and financial distress. This would include disruptions to Japanese interest rates, the British pension system, and cryptocurrency exchanges. This led to interventions by various global banks including the European Central Bank, the Bank of England, and the Bank of Japan.
This is not to be unexpected, given that the Fed has embarked on its fastest interest rate increase campaign in more than 40 years. They now find themselves stuck between a rock and a hard place…trying to fight elevated and persistent inflation (see chart below), while also trying to provide liquidity and stability to the banking system and the bond markets.
We are cognizant that there are also continuing fears of recession. The economy is slowing, and the Index of Leading Economic Indicators points towards a future slowdown or recession. As you can see in our chart below, the index has now dropped for eleven consecutive months, which we have never seen without a recession following close behind.
On a more upbeat note, inflation is high but cooling, unemployment is still low, and the jobs market is still relatively strong. We also expect the Chinese economy reopening to provide a boost to global growth this year.
While we do not think this is a good time to be taking additional risks in your portfolio, we want to remind you that interest rates are at the highest levels we have seen in nearly 15 years. This means that you can get paid a reasonable rate of return on your funds while you wait for more clarity on the market and the economy. Short-term bonds are paying interest rates of 4%-5% currently and traditionally provide both low levels of volatility and daily liquidity. Please reach out to your advisor if you have questions.
During times such as this, it is important to not respond emotionally to short-term, dramatic moves in the markets. History tells us that selling after a significant drop in asset prices has not proved to be a winning strategy. Your advisor has helped you create a diversified asset allocation strategy that is aligned with your financial goals and objectives. Therefore, we believe that unless those goals and objectives have changed, you should stay the course. Our final chart below shows that while this does not always feel good at the moment, it has generally turned out to be a positive and constructive strategy.
For our younger clients that are still in the accumulation phase of life during their working years, we want to remind you that temporary downturns in the market can give you the opportunity to buy more shares at lower prices through regular deposits to your 401(k)s and IRAs. This can work to your advantage as you try to build and accumulate the wealth you will need to make a successful transition from work life to retirement life in the future.
We also want to remind you to not think about your financial life in day-to-day terms. Recent statistics on longevity show that for a married couple both age 65, there is more than a 70% probability that at least one spouse will live to age 90. We are running a financial marathon and not a sprint. Therefore, you should be thinking about your financial resources with a similar timeframe. Your advisor is here to help you with any questions you may have about your family’s unique situation. You do not have to ride these economic waves alone; we are here for you!
© 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.
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.