September 2024 Investylitics

Horizon Advisor Network Investment Committee September 9, 2024

The Horizon Advisor Network Investylitics Committee members met on the afternoon of Monday, September 9th. Six of our seven committee members were present. We want to congratulate Grace Hayden MacNaught of Atlanta Planning Group and her husband on the recent birth of their twin sons, Kellum and Sawyer, on September 1st. As it had only been eight days since their birth, we decided to give her an excused absence for today's meeting!

When the investment committee last met in early August, the markets were experiencing a pullback prompted by concerns about slowing growth and rising unemployment. Volatility quickly and briefly moved up to levels we had not seen since the early days of the COVID-19 pandemic. From a seasonal perspective, the period from after the Presidential conventions to late October tends to be historically volatile. Much of this is due to uncertainty about the outcome of the upcoming elections. We also know that September tends to be the worst month for the market, as you can see in our first chart below. It is the only month when the S&P 500's average return has been negative over the last 40 years.

The Federal Reserve Bank will meet next week and announce its decision on Wednesday, September 18th, at 2:00 PM EST. It is widely expected that the Fed will begin cutting interest rates for the first time since early 2020, when we were in the midst of the COVID-19 economic shutdowns. The big questions are how much and how often they will reduce interest rates over the coming months. In his recent speech at the Fed's annual symposium in Jackson Hole, Chairman Jay Powell indicated greater confidence that inflation is continuing to moderate toward their long-term 2% target, however, signs of deterioration are beginning to appear in recent employment reports.

It is important to remember that the Federal Reserve Bank is unique among global central banks in that it has two separate mandates. The Fed is charged with maintaining price stability (low inflation) and maximum employment, while most developed central banks have a sole mandate of price stability.

The Fed has made significant progress by bringing inflation down from 9.1% in June 2022 to under 3% currently. Economists and the futures markets believe that the Fed will likely cut interest rates by 25 bps, although a few think they may take a more aggressive stance and cut by 50 bps.

Both stock and bond markets have moved higher in anticipation of lower interest rates. History shows that markets have generally moved higher 12 months after the Fed began cutting interest rates. However, this is not guaranteed. As you can see from our second chart, when the Fed began cutting interest rates in 2001 and 2007, the markets moved down significantly. This was primarily due to geopolitical events and significant economic downturns.

Over the last several months, we have seen signs that the employment and jobs market is declining. The number of new jobs being created each month has slowed significantly over the last six months. The unemployment rate has risen from 3.4% in April 2023 to 4.2% currently. Historically, increases in the unemployment rate of more than .6% have typically been followed by economic slowdowns or recessions. As you can see in our last chart below, the number of job openings has dropped dramatically over the previous year and a half. In early 2022, there were nearly two jobs available for every person looking for work. That number has now dropped to just over one job available for every person looking for work. This is below the pre-pandemic levels, and the Federal Reserve Bank hopes this reduces wage pressures, which feed into inflation.

Second-quarter corporate earnings have largely surprised to the upside, with approximately 75% of companies reporting better-than-expected bottom-line numbers. Earnings per share for the S&P 500 were up 11.6%, more than 5% above initial estimates. However, there is growing concern that next year's earnings estimates are overly optimistic given a slowing economy. Economists currently expect earnings to increase by approximately 15% in 2025. If future earnings come in below expectations, it could create additional downside risk in the markets as valuations are near the top end of historical ranges. The investment committee will keep a watchful eye on these metrics moving forward.

In recent client meetings, many have been surprised to see how well their bond and fixed-income investments have performed over the last year. After having their worst year in more than a century in 2022, bonds have quietly put up strong absolute and relative returns as markets anticipate future Fed rate cuts.

This reminds us of the importance of having a portfolio that is both age and risk-appropriate while maintaining adequate diversification among multiple asset classes. Rebalancing your portfolio regularly to take advantage of bouts of market volatility has proven to be a valuable strategy over long periods of time.

The members of the Investylitics Committee would like to thank you for your continued trust and support. We know that times of economic and political uncertainty can create volatility, which can sometimes be challenging to live with. This is especially true for people who spend an inordinate amount of time watching their account values or the cable news and computer screens too closely. The committee members are here and available if you have questions about your and your family's specific situation. Please do not hesitate to reach out. This too shall pass. Have a great day.

The views stated in this piece 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. Due to volatility within the markets, 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.

A diversified portfolio does not assure a profit or protect against loss in a declining market

Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional.

Sincerely,

Jesse W. Hurst, CFP®, AIF®
Senior Financial Planner and CEO

*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.