September has historically been the worst month of the year for stocks (LPL Financial), and this year was no different as the S&P 500 closed the month down almost 4%. (YCharts) Despite recent weakness the stock market has shown amazing resilience as the S&P 500 is about 4% higher year-to-date, rallying 50% from the lows in March. (YCharts)

COVID-19 has undoubtedly been the biggest factor impacting the economy and stock market this year, and will likely continue to be the most important item to watch as we enter the fourth quarter and move into 2021. Amidst the backdrop of a global pandemic the economy has steadily improved over the last few months.  The improvement in economic data, combined with the latest market pull-back, has led us to increase our stock market exposure. 

While we are increasingly optimistic given the recent economic improvement and accommodative monetary and fiscal policies, we feel investors should be prepared for additional volatility as we move closer to the election and potentially face a second wave of COVID-19 in the fall.  Our cautiously optimistic outlook is reflected in our current allocation as we continue to have a portion of portfolios defensively allocated after the recent changes.

We wanted to share a few data points that illustrate the economic improvement and accommodative central bank policies: 

• US ISM Manufacturing – we have now seen the ISM Manufacturing PMI index move higher 3 months in a row, signaling future growth. The August reading came in at 56, the highest level since January, 2019. (YCharts)

• Unemployment – While the labor market picture is hardly bright with an unemployment rate of 8.40%, the trend in unemployment (and jobless claims) has shown consistent improvement. (YCharts)

• Interest Rates: The Federal Reserve has continued to be very supportive of the economy and perhaps the clearest evidence of this can be seen through the Fed’s interest rate cuts:

As this unprecedented year continues, we will continue to keep a close eye on developments and will be ready to make further portfolio changes as needed.

Best Regards,

Your Team at TLWM

*Investment advice offered through TLWM, LLC., a registered investment advisor.

*The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

*The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

*Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

*Credit risk can be a factor in situations where an investment’s performance relies on a borrower’s repayment of borrowed funds. With credit risk, an investor can experience a loss or unfavorable performance if a borrower does not repay the borrowed funds as expected or required. Investment holdings that involve forms of indebtedness (i.e. borrowed funds) are subject to credit risk.

*Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause your account value to likewise decrease, and vice versa. How specific fixed income securities may react to changes in interest rates will depend on the specific characteristics of each security. Fixed-income securities are also subject to credit risk, prepayment risk, valuation risk, and liquidity risk. Credit risk is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of a bond to decline.

*Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

*Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

*Past performance does not guarantee future results. Investing involves risk, including loss of principal.

*You cannot invest directly in an index.

*Consult your financial professional before making any investment decision.

*Stock investing involves risk including loss of principal.

*This document is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Texas Legacy Wealth Management and its representatives are properly licensed or exempt from licensure.

*No strategy ensures a profit or protects against a loss.