* Trade/tariff issues continue to weigh on the global economy, especially the manufacturing sector.
* The markets have rebounded above the recent trading range and support levels due to better than expected economic news and hopes of a trade deal based on China and the United States agreeing to meet in early October.
* Interest rates have dropped significantly around the globe over the last few months, and there is an expectation that the Federal Reserve Bank will cut interest rates again this month.
* Lower interest rates are driving mortgage refinancing activity and should support the overall real estate market.
The Joint Investment Committee of Horizon and Impel Wealth Management met on the afternoon of September 9th. In addition to the regular committee members, we were happy to add a new member, Mike Hackler, CFP, who has joined the team at Horizon Wealth Management in Baton Rouge. He brings a strong background in investment and economics and will be very additive to the team going forward.
The committee continues to monitor economic events and we are happy to report that all of our model portfolios have beaten their risk adjusted benchmarks over the last one, three, and five-year periods. We continue to monitor the investment, economic, and political commentaries coming from the economic and investment strategist teams that are followed by the committee. The general consensus is that the current trade/tariff struggles that are going on between United States and China are having an impact on the manufacturing sector of the economy. There is fear that this could bleed over into the broader economy. However, on a more upbeat note, we were happy to see that last week's ISM report showed that the service sector of the economy, which accounts for the majority of economic activity, rebounded nicely, showing relatively strong expansion. This gives us evidence that the current impact from trade tariff and manufacturing issues is not as detrimental as initially feared, at least at the present time.
Uncertainty about the future course of interest rates and what the Federal Reserve Bank will do, has been an additional source of speculation and volatility. The fact that interest rates in the longer term bond markets have fallen precipitously, both in the United States and around the world, has lowered borrowing costs, bringing 30-year mortgage costs back below 4%, more than a full percentage point lower than where they were in just November of last year. This should help support the residential real estate market, which generally makes up 15% to 18% of economic activity across the board.
Over and above this, the most recent sales numbers show strong consumer activity. Consumer spending accounts for nearly 70% of economic activity, and with unemployment at 3.7%, near historic lows, and jobs growth relatively strong, and interest rates low, individuals and families are feeling relatively confident and continue to spend. It would be hard to imagine an economic downturn or recession in such a time period. The committee will continue, to monitor the data that may determine the runway to the next recession.
From a technical standpoint, the market traded between its 50 day and 200 day moving averages over most of the month of August. However, in early September, news that China and the United States were going to resume trade discussions in October caused the market to finally breakout to the upside, which was a pleasant surprise. The S&P 500 is now trading up both its 50- and 200-day support levels, something many did not expect would happen in the short-term.
Therefore, as the committee has observed recent economic data and the market's current level of resilience, we remain cautiously optimistic in the near term. We are making no changes to our portfolios presently. We are happy to report that most of our portfolios are up nicely this year, as the bond portions of our portfolios have been additive due to falling interest rates. We know this is likely to be a short-term phenomenon and you should not expect high single digit returns from bonds going forward.
As markets once again move towards all-time highs, it is important to remember to re-balance your portfolio if you have not done so in over a year. It is also important to use upturns in the market to harvest the cash that you will need over the next 12 months or so. By selling high and not being forced into activity when markets are going through bouts of volatility or dislocation, you can help protect your portfolio and your emotions.
Thank you for your continued trust in the investment committee and team process. Should you have any questions regarding these notes, please don't hesitate to reach out to your advisor.
