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The December jobs report blew past already elevated expectations for job creation, as 266,000 additional jobs were added to the economy and the unemployment rate dropped to 3.5%.
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It seems that there is a potential for an easing of global trade tensions. This includes both a phase one agreement between the United States and China and the long-awaited passage of the USMCA.
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As monetary policy generally works with a six-month lag, the three interest rate cuts in the late summer/early fall by the Federal Reserve Bank could be stimulative to the economy in the spring and summer of next year.
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We are cognitive that there are still political and geopolitical tensions and that stocks are relatively fully valued. This has to be measured in context to the above data.
The joint investment committee of Horizon and Impel Wealth Management met on Monday, December 9th. The December jobs report came out last Friday. That report showed that the 266,000 jobs created by the economy far exceeded the expectations of 180,000 jobs. The unemployment rate dropped to 3.5%, a 50-year low. Year over year wage growth was in excess of 3%, showing that the economy and the consumer is in relatively better shape than we would have thought at this point in the economic cycle, especially with the concerns about a future recession that surfaced over the summer months.
There have been a number of factors that have caused the markets to go from a gloomier picture this summer to a slightly more optimistic view at the present time. This includes a seeming willingness on the part of the United States and China to work towards a trade deal. Even if a deal is not reached, the fact that the two largest economies in the world are not slapping each other with more tariffs and penalties seems to be constructive for the near-term view. If we can get a phase one deal that will help reduce tensions and supply chain issues further, which would be even more positive. In addition to this, it seems that we are finally getting closer to the passage of the USMCA trade agreement between the United States, Mexico, and Canada. As Mexico is our largest trading partner and Canada is our second largest, this agreement would represent nearly $2.5T of annual trade, five times the amount of trade that we do with our third largest trading partner, China. This would also give the USMCA trade block more unified strength in negotiating with China going forward.
In addition to this, the three interest rate cuts by the Federal Reserve Bank have given more confidence to the market in the near term. We know that monetary policy typically works with a six to nine-month lag. This means that the economy and in particular, manufacturing, may pick back up in the spring of 2020. All of this could be helpful to the president's re-election bid, and, as the markets hate uncertainty, this has caused cautious optimism in the equity markets over the last few months.
We are happy to report that the model portfolios of the joint investment committee of Horizon and Impel Wealth Management continue to outpace their risk adjusted benchmarks over the last one, three, and five years. The adjustments that had been made by the committee earlier this year seem to be working well and have us positioned well for the near-term outlook. The moves made previously have helped reduce risk and provided more diversification/resilience in these portfolios as well. We are not making any additional changes as we head into year-end but stand ready to reassess should information or data change.
The markets broke above their previous July 26th closing high in October. The markets are now firmly above both their 50-day and 200-day moving averages, which are sloping upward and lending further support to our outlook. The overall tone of the market strategy teams followed by the committee seem to be cautiously optimistic, and this is supportive of our overall outlook.
We wish our trusted friends and clients a happy holiday season and thank you for your continued trust in our committee and our process. We take that responsibility seriously and look forward to helping you use your hard-earned resources to meet your retirement and investment goals for many years to come. Thanks, and have a great day.
