This Week from Jesse Hurst
Jesse W. Hurst, II
CFP® CERTIFIED FINANCIAL PLANNER™
AIF® ACCREDITED INVESTMENT FIDUCIARY
Horizon Advisor Network Investment Committee
● The S&P 500 hit a new all-time high on September 3rd of this year. Markets had moved up in August and subsequently experienced a 10% pullback, which is not to be unexpected given the amount of uncertainty in our economic and political backdrop.
● The market seems to be caught between hope for additional stimulus coming from Capitol Hill, and a slowing economic recovery after the initial V-shaped bounce off the bottom of the coronavirus induced economic shutdown earlier this year.
● The election is weighing heavily on the markets. Perceptions are that the period of time leading up to Presidential and Congressional elections has been volatile and directionless.
● Despite what you hear or read in the media, economic surprises are still happening to a large degree and are biased to the upside. The latest ISM numbers on both the manufacturing and service side of the economy reflect this, as does last Friday's unemployment report.
We wanted to start today's report by bringing your attention to our new name and brand. Since the founding of Impel Wealth Management, we have been part of the Horizon Advisor Network. We have decided to rename our investment committee under our entire group's name to better reflect the collaboration between more than 50 advisors in more than 15 offices across the country. You will also notice the new name of the monthly committee report, Investylitics. We feel this name truly reflects the combination of investment research and analytics that we apply to create the preferred funds grid and model portfolios for the advisors of our network to use in serving our clients. Going forward you will see this name reflected across a number of our processes.
The committee met on the afternoon of Monday, October 5th. We discussed the outlook from the economists and market strategists followed by the committee. We also reviewed the allocation, performance, and risk profiles of our various model portfolios. We were happy to report that our model portfolios continue to outperform their risk adjusted benchmarks over the most recent one, three, and five year periods.
After moving up significantly during the month of August and hitting an all-time high on September 3rd of this year, the markets pulled back and suffered a relatively mild 10% correction. This should not have surprised anyone, as we know markets do not go in just one direction and trees do not grow to the sky. We also know that we are in a period of great uncertainty and volatility, both economically and politically.
The market seems to be caught in a tug of war between hope for additional stimulus and fears of a slowing recovery. Federal Reserve Bank Chairman Jay Powell has said on multiple occasions that there are limits to how much stimulus the Fed can provide and that the economy needs additional help from Capitol Hill. It seems that the initial V-shaped recovery that we experienced in the economy and markets in May, June, and July of this year seems to be losing some of its steam. The hope is that some additional fiscal stimulus will keep things moving in the right direction while we wait for the outcome of the elections and widespread acceptance and dissemination of a vaccine that allows a return to a more normal life.
Despite these concerns and what most people are reading and seeing in the media, most economic indicators continue to surprise to the upside. A couple of reports out last week confirm this trend. One was the Institute for Supply Management Service Sector reading on the economy. While most people expected this to slow, it actually rose to a level higher than it had been in January and February of this year before the onset of the coronavirus outbreak. This is very important, as the service sector makes up more than 80% of all economic activity.
Also, the unemployment report, according to headlines, was disappointing in that we only created 660,000 jobs versus 800,000 expected. However, the unemployment rate fell more than expected and is actually under 8%, a number most people felt was not attainable just a few months ago. Also, you really had to dig through the reports to find that the revisions to the August and September jobs report actually added an additional 145,000 jobs, meaning that the new jobs and revisions put us exactly where we expected to be, not necessarily what you read in the headlines. (It is interesting to note that the two most populous states, New York and California, which have had some of the most severe lockdowns and restrictions in regards to social distancing, quarantining and economic shutdowns, account for approximately 18% of the US population but account for more than 32% of all the unemployment claims with unemployment rates in double digits in both of those states.)
The Citigroup Economic Surprise Index is at a level much higher than anybody would have thought or predicted and has sustained at that level. This bodes well for future economic growth, and additional stimulus from DC will only help keep this momentum.
Finally, the election is weighing heavily on the financial markets. The uncertainty around the elections leads some people to want to move out of the markets until after the election to avoid volatility. The chart from Morningstar below, shows on a historical basis over the last 50 years, that markets, on average, tend to move up in the three months prior to and the three months after elections. The two notable exceptions being the elections that took place during the Dot.com bubble in 2000 and the financial crisis that took place 2008.
Therefore, we suggest that people stay invested in diversified portfolios, with asset allocations designed to help them meet their financial and investment objectives over time. Should you have any questions regarding these notes, please do not hesitate to reach out to your advisor. The committee thanks you for your continued support and looks forward to hearing your feedback about our reporting and our branding as we continue moving life forward for all of our friends and clients. Thanks and have a great day.
Market Performance Tends to Be Positive 3 Months Before and After Presidential Elections
S&P 500 Index (% Returns)
Source: Morningstar, 9/20. Past performance does not guarantee future results. The Index is unmanaged and not available for direct investment. For illustrative purposes only.
*Investors cannot directly invest in indices. Past performance does not guarantee future results.
*Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No System or financial planning strategy can guarantee future results.
Jesse W. Hurst, CFP®, AIF®
Investment Advisor Representative
Your Team at Impel Wealth Management
2006 4th St.
Cuyahoga Falls, Oh. 44221
*The views stated in this letter 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. *
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