* Many data points are continuing to show strong growth and confidence in the US economy.
* There is a general consensus that economic growth will continue to accelerate throughout the year as a result of the interest rates cuts, a strong jobs market and recent trade deals.
* The Wuhan Coronavirus has caused concern that economic growth could be slowed for a period of time in China. This could eventually spill over to the rest of the global economy.
* However, if this viral outbreak follows the historical pattern, a temporary slowdown will be followed by a rebound in economic growth later in the year
The joint investment committee of Horizon and Impel Wealth Management met on the afternoon of February 18th to discuss the current model portfolios and our outlook for the economy and the markets going forward. We are happy to report that our model portfolios continue to outperform their risk adjusted benchmarks over the most recent one, three, and five-year periods of time. The most recent adjustments made by the committee in November in 2019 seem to be working well and have us positioned well, given the backdrop of the current market outlook and challenges.
There are a number of things that continue to go very well within the U.S. economy. These include weekly jobless claims being near-record low levels, job creation continuing to be very strong, especially this late in an economic cycle, consumer spending and retail sales continue to perform well, as does softer data such as consumer sentiment.
There was a general consensus in late 2019 that economic growth would pick up in early and mid-2020 due to the Federal Reserve bank cutting interest rates, the trade deal being struck with China, the jobs market being strong, and the passage of the US/Mexico/Canada trade accord. However, there have been some new challenges that have been thrown at us, especially around the Wuhan Coronavirus, its impact on the Chinese economy and whether this impact will eventually spill over to the U.S. In looking at past outbreaks such as SARS, MERZ, Zeka, Swine flu, Bird flu and Ebola, we can take some comfort that each of these situations was eventually resolved, and that after an initial downturn on fears of the outbreak, markets were actually on average approximately 8% higher six months later.
While we do not know whether this current outbreak will take the same path, we are encouraged by the history of similar scenarios in the past. We know that China is a larger part of the global economic engine today than it was in the past, and while there will certainly be a slow-down in China's growth in the first and possibly second quarter of this year, some of that will be deferred to later in the year. Some production and economic activity will also move to other parts of the world. While exports in 2019 were down in China and Hong Kong, mostly due to trade/tariff issues, other countries, Vietnam and Taiwan in particular, saw their exports pick up dramatically as different parts of the supply chain moved, maybe permanently, to these areas.
Against this backdrop, our committee continues to be cautiously optimistic. The S&P 500 is trading at 3,370, nearly 10% above its 200-day moving average of 3,035. Therefore, we would not be surprised to see a short-term pullback as the markets have gone up dramatically since mid-October of 2019. As a matter of fact, according to research from JPMorgan, since 1980 the market has averaged a downturn of 13.8% over the last 40 years. However, over that time period the market has been positive 75% of those calendar years. Therefore, we need to remember that corrections and short-term downturns are quite common AND we cannot forecast or time them in any meaningful way. This means that it is most important for you to stay focused on your long-term goals and objectives. As long as your portfolio is aligned with those objectives, you would do well to stay the course.
The committee will continue to keep an eye on the economic and political landscape, especially as we move through the Democratic primary season and into the National Conventions. We are aware that political noise and news can cause volatility but generally does not impact the economy in a great way. Historically, election years, while above average in volatility, also tend to be above average in return. We will continue to monitor these events and take action if and when necessary. We thank you for your trust and support, and if you have questions regarding these notes, please do not hesitate to give your advisor a call.
