2006 4th Street,
The Horizon Advisor Network Investment Committee met on the afternoon of October 9th. We were happy to have the opportunity for our team members to share their investment research and observations as there has certainly been a lot going on over the last month from an economic and geopolitical standpoint.
The market continued its descent during the month of September. We know that from a historical basis, the time period from mid-July to mid-October has historically been volatile with a downside bias. This year has been no exception. The market had previously advanced in June and July after President Biden, and then House Speaker McCarthy reached an agreement on the debt ceiling issues that avoided a potential government default. On the contrary, this time, despite a last-minute deal being struck to keep the government open and funded for an additional 45 days, the market continued its descent bringing the S&P 500 back to the same level it was around June 1st.
The Bureau of Labor Statistics recently released the job openings, JOLTS, and unemployment reports. Both surprised to the upside with more job openings being reported and more jobs being created than were expected. This potentially complicates things for the Federal Reserve Bank, which was hoping to see a slowdown in both measures. A cooling would potentially allow wage growth to slow and would reduce inflationary pressures in the future.
Additionally, it appears that the economy continued to grow at a faster pace than expected in the third quarter. Most economists believe that the rate of growth will slow substantially going forward due to the lagged effect of higher interest rates, more restrictive bank lending, and consumers running out of stimulus and pandemic savings. We know on an anecdotal basis that credit card balances are at all-time highs and that both credit card and auto loan default rates are rising.
The world was also shocked by the recent brutal attack on Israel from the terrorist organization, Hamas, which emanated from the Gaza Strip. Many of us saw these events play out in real time on the television and internet. While we are dismayed to see such brutality and violence, we would like to remind you that geopolitical events like this often create volatility in the markets. However, historically their impact has been muted and short-lived. We do not believe it is wise to make long-term investment decisions based on day-to-day headline news that is already priced into the markets.
We believe that the Federal Reserve Bank is nearing the end of its interest rate increase campaign. They are still threatening to raise interest rates one more time, after already raising rates 11 times by a total of 5 1/4% since March 2022. The cumulative effect of these interest rate increases has brought the yield on short-term, liquid, and high-quality investments, such as Treasury Bills to more than 5%, a rate we have not seen in nearly 20 years.
As interest rates have risen and bond prices have fallen over the last three years, we have experienced the worst returns in the bond market since the late 1950s. It is always difficult to stay allocated to an investment class that has had poor returns, especially when looking through the rearview mirror. However, we would like to remind you that when the Fed is finished raising rates, these same bond positions have historically rallied and produced good returns with lower historical risk than stocks. We encourage you to continue to look through the windshield of the future when managing your portfolio, allocations, and expectations.
Just as the late summer period has historically produced volatile returns with a downside bias, remember that the period from mid-October to the end of the year has historically produced much better returns as you can see in the chart below. While this is no guarantee for what will happen, it does give us some hope for a better finish to the current calendar year. The seasonality effects along with the recent pullback in stocks may present a good entry point for those having excess cash, or for those who are still in the accumulation phase of life and dollar cost averaging into their portfolios through vehicles such as their 401(k) plans.
We strongly encourage you to keep a long-term perspective on your portfolios despite the day-to-day headlines and global events that may produce a more emotional response. As always, if you have questions about your unique situation, please reach out to your advisor, we are here for you. The Investylitics Committee appreciates your continued trust and support as we work to help you navigate this unusual economic and investment environment.
© 2023 Jesse Hurst
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.
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.
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.