Broker Check

May 2023 Investylitics

Horizon Advisor Network Investment Committee May 5, 2023

Executive Summary

  • Even as inflation continues to moderate, albeit at higher levels than we have seen in decades, the Fed continued to move interest rates higher to combat ongoing price pressures.
  • This has been done even as we witnessed a third regional bank fail just before the Fed meeting last week.
  • Although many leading economic indicators continue to point towards a coming recession, employment and wage growth continue to be stronger than expected at this point in the business and economic cycle.
  • We are also closely watching the continued partisan bickering on Capitol Hill as we draw closer to the upcoming debt ceiling deadline.
  • Against this backdrop, we expect volatility in the stock market to continue at elevated levels, while yields and pricing in the bond market present better opportunities than we have seen in many years.

The Horizon Advisor Network Investylitics Committee met on the afternoon of Thursday, May 4th. We were happy to have the opportunity to review recent economic and investment research, especially in light of the continued market-shaping events that have taken place since our last meeting.

 The Federal Reserve Bank remained determined to squelch ongoing inflation pressures by raising interest rates for the 10th time in the last 14 months earlier this week. This brings the cumulative interest rate increase to 500 basis points or 5%. As you can see from our first chart below, this has been the steepest rate of increase we have witnessed in the last 40 years.


Many people wondered if the Fed would continue to raise interest rates as the cumulative effect of the previous increases has continued to put pressure on the balance sheets of banks across the country. We know that as interest rates go up, the bonds and mortgages these banks hold as collateral decrease in value.

Unlike the subprime mortgage crisis, which unfolded over ‘07–‘08, and was led by collateral values dropping meaningfully due to poor underwriting and credit risks, these bonds and mortgages are high-quality assets that have little credit risk. Instead, they have duration risk as interest rates rise. This causes the value of the collateral to fall sharply. Ironically, the Federal Reserve holds vast sums of these same bonds. There has not been much said about this, however, it means that the Fed has hurt its own balance sheet by raising interest rates at this pace.

We are also seeing many leading economic indicators accelerate to the downside, pointing us toward a recession. This means that it will likely come sooner and be deeper than we previously expected. Historically, during times of stress in the financial system, banks pull back on lending. This will likely act as another break on the economy, slowing growth further and faster than interest rate increases alone.

As you can see in the chart above, the yield curve is deeply inverted, something that has preceded the last seven recessions. Below, you will note that the index of Leading Economic Indicators has fallen 12 months in a row, with the trend accelerating recently. There has never seen a downturn like this without a recession following shortly thereafter.

As if there was not enough to think or worry about economically, our elected officials on Capitol Hill seem to have dug in their heels on the debt ceiling issue. Treasury Secretary Janet Yellen issued a statement last week saying that the debt ceiling needs to be raised by June 1st to avoid a technical default. We believe that a solution will ultimately be reached, probably at the last minute. Sorry to sound cynical, but this allows maximum time for grandstanding and photo ops, which partisan politicians on both sides of the aisle believe will help with their fundraising and re-election efforts.

Against this backdrop, we expect volatility to continue in the stock market over the intermediate timeframe. It is important to remember that historically the stock market has troughed midway through a recession, while the news and noise spinning in the media is at a fever pitch. Inexplicably, it then starts going back up in anticipation of the next economic recovery. This is why it is extremely difficult to time the markets. Volatility is the price of admission we pay in order to get the opportunity to compound our assets at a higher rate of return over long periods of time.

We also want to remind you that yields in the bond market are higher than we have seen in nearly 20 years. This means that there is an alternative to leaving money in the bank earning very low rates of return. It also means that future returns of the bond market over the next several years could be much more attractive than what we have seen recently. Remember, during a recession, the Fed will eventually have to cut interest rates. This in turn will cause bond prices to rise. We think this setup is very attractive for our clients going forward. 

As always, should you have any questions regarding your unique situation, please reach out to your advisor. The committee members appreciate the confidence and trust you place in our team and our process. We strive to help you steward and grow your hard-earned assets. 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.


Jesse Hurst - Chair, Impel Wealth Management

Nathan Ollish - Impel Wealth Management

Clint Gautreau, Horizon Financial Group

Kevin Myers, ATL Global

Joy Schlie, FHT Financial Advisors

Dusty Green, Spencer Financial Inc.


Jesse W. Hurst, CFP®, AIF®
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

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.