Investment Committee Notes- July 2020

Possible Economic Risks

The joint investment committee of Horizon and Impel Wealth Management met on the afternoon of July 6th.  During our meeting, we discussed the outlook from the various economists and market strategists that we follow, as well as the performance of the model portfolios overseen by the committee. Our model portfolios have continued to outperform their asset allocation, risk-adjusted benchmarks over the last one, three and five years.  We are especially happy with this as the markets and economy have presented many challenges since the initial economic shutdown orders due to the viral outbreak in the United States.

There seems to be a relatively consistent concern among both our committee members and the teams we follow that there are a number of economic risks that are not being priced in adequately by the stock and bond markets currently.  These include temporary job losses becoming permanent based on the number of retail, restaurant, travel and fitness brands that have shut down for good during this outbreak.  This could lead to overall lower wage growth, consumer spending and retail sales. We believe that with the markets rebounding strongly while corporate earnings are set to fall over the next quarter or so, before hopefully rebounding strongly later in the year, stocks are relatively fully priced.  We also know that there is significant political uncertainty moving forward with both the Presidential and Congressional elections coming up. 

Evaluating the Market Ahead

On the other side of those concerns is continued, massive stimulus, both in the form of lower interest rates engineered by the Federal Reserve Bank, and direct stimulus to individuals and companies overseen by Congress and the Treasury Department.  There is also talk that after their 4th of July recess,  there may be additional stimulus on the way, as enhanced unemployment benefits are set to expire at the end of July.  We will continue to watch as these events develop to determine their impact on the economy and the markets. 

At this time, the investment committee is not recommending any additional changes to the portfolios.  Our portfolio models and recent changes have led to above benchmark performance over the last year, and we are happy with our overall allocations.  We are continuing to put a bias towards high quality, low-debt companies within our portfolios.  We are also leaning more towards actively managed funds, instead of broad index exposure, due to the fact that there will likely be winners and losers coming out of the post coronavirus economic environment and recession. 

We also have observed that investor sentiment, which tends to be a contrarian indicator, is at near historic lows at the present time.  There is also over $5T sitting in money market funds, which if investors gain more confidence due to a vaccine or therapeutic, or as jobs become more plentiful again, could flood back into the market and drive prices higher.  The committee will continue to balance these issues as we manage through what has been a challenging backdrop.

Final Thoughts to Consider

While the committee believes that capitalism, free markets, entrepreneurial-ism, innovation and technology will continue to drive long-term trends in the United States' economy and markets, we know that the markets have moved up very far, very fast since late March. Therefore, we would not be surprised to see some short-term volatility.  We believe that the lows for this recession were put in late March, and that the massive stimulus has set a floor underneath the markets and clients account values for the time being.

That said, we would take advantage of the current rebound in prices of both stocks and bonds to re-balance portfolios back to their model allocation and risk levels, and use this opportunity to raise any cash needed over at least the next six to twelve months, and possibly further out for the more risk averse.

The committee thanks you for your continued trust in our team and our process. Thanks, and enjoy the rest of your summer.

Should you have any questions regarding these notes, please do not hesitate to Kevin at (404) 788-3539.

*Investors cannot directly invest in indices. Past performance does not guarantee future results.

*Investments in securities do not offer 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.

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