Atlanta Global Advisors Investment Committee Notes
Today's investment committee meeting began with a review of our four main model portfolios. There
has been significant volatility in the markets this year, both in the U.S. and to even a greater extent, the
international and emerging markets. We also know that there has been significant pressure on the bond
portions of the portfolio, due to the Federal Reserve Bank continuing to raise interest rates three times
this year, with a likely additional interest rate increase at their meeting next week. Against this volatile
backdrop, all of our portfolios have exceeded their risk-adjusted benchmarks on one, three, and five
year basis. We were pleased that at least on a relative basis, our portfolios have accomplished their
goals. We are, however, aware that clients cannot spend relative performance, and we are watching the
markets and economy diligently during this period of uncertainty.
In reviewing comments from the economists and financial commentators that the committee follows,
we see a blend of optimism, realism, and cautiousness. Several of the economic forecasting teams that
we follow still feel that the U.S. economy, while growing more slowly than it has recently, shows no
immediate signs of a recession looming, and that with solid, albeit slower, growth, the economy can still
produce good earnings. At current interest rate levels and current price/earnings level in the markets, it
could produce reasonable investment returns over the short-intermediate term time period.
The more realistic and cautious economic teams that we follow noted that the economic recovery cycle
that we are experiencing will soon be the longest in U.S. history, which means it is likely closer to the
end than the beginning. They also note that a grid locked Congress will likely not create any additional
economic stimulus, unless a Democratic House and Republican Senate can agree on some sort of
infrastructure spending bill. We remind you that the U.S. stock market is a leading economic indicator
and tends to peak before recessions start.
We are aware there are inflation pressures building in the economy. Throughout the year we have seen
some upward pressure on some commodity price inputs, although the recent pull back in oil prices
should reduce some of the short-term inflation pressures. We have also seen wage pressures starting to
rise due to the extremely low level of unemployment. The Bureau of Labor Statistics continues to show
more job openings than available workers to fill those jobs. This is causing employers to pay up for
qualified employees. This has led to the Federal Reserve taking a more active role in raising interest
rates. We are cognizant that since 1955, the Federal Reserve Bank has gone through 11 previous cycles
of raising interest rates, which has resulted in nine recessions.
From a technical standpoint, the markets have broken through their 50-day and 200-day moving
averages to the downside. What was previous support will likely become a ceiling of resistance. We
believe that we will have to see some good news from either the Federal Reserve Bank pulling back on
interest rate increase expectations OR the trade/tariff war with China to cause the markets to move
higher. Without this, we will likely be left to wait for first quarter earnings season to start in mid-
January before we get a better read on things.
Against this backdrop, the investment committee continues to be optimistic but cautious. There are no
immediate signs that would show the economy tipping into recession in the next 6-12 months. The
index of Leading Economic Indicators, as well as the Purchasing Manager Indexes for both the
manufacturing and service sides of the economy continue to be strong. We did see the 2-year and 5 -
year treasury spread invert this week. However, we are more focused on longer term spreads between
the 2-year and 10-year treasury, which has typically been a more predictive value in charting the course
towards future recessions. The investment committee is making no major asset allocation changes at
this point in time. The previous changes made in July and August of this year reduced U.S. equity
exposure, added lower volatility versions of certain funds to the portfolio, and added some long/short
commodity exposure to further diversify our holdings away from traditional stock, and bond assets have
worked to reduce risk and volatility in our accounts so far.
The investment committee understands that volatility, along with a 24-hour cable news cycle, Internet
stories and social media, can combine to create investor anxiety. We appreciate those feelings;
however, we remind you that most good investment decisions are not made based on emotions. The
team here is continuing to watch and monitor significant amounts of economic investment data on your
behalf. For our younger clients who are still in the accumulation phase of life, we wanted to remind you
that market volatility and downturns give us the opportunity to add to our investments when prices are
down, and things are on sale.
Thank you for your trust and confidence in our team and our process. Should you have any questions
regarding these notes or your portfolio and financial situation, please do not hesitate to reach out to
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 with 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.