Monthly Market UpdateSubmitted by Texas Legacy Wealth Management on October 2nd, 2019
The S&P 500 wrapped up the third quarter with a steady September, closing about 2% higher for the month and 1% for the quarter (YCharts). Despite the wide range of risks that have grabbed headlines throughout the year (inverted yield curve, central bank policy, Brexit, geo-political risks, and the US-China trade war), US stocks (S&P 500) are now close to all-time highs.
In addition to understanding the impact of market moving headlines we believe it’s critical to monitor underlying economic conditions. We do this with our economic dashboard. We regularly review and update this dashboard, which consists of seven indicators that have historically been good signals ahead of a recession. We currently have two indicators flashing red, the Yield Curve and Business Confidence, both of which have triggered since the beginning of the year. To us, this signals that the chances of recession have increased.
- Business Confidence: This is the most recent dashboard indicator to turn red. We use the ISM PMI Manufacturing Index to track business confidence. This indicator has historically given us an idea of what profits will look like in the future. The ISM PMI Manufacturing Index has been declining throughout the year, and the two most recent readings have been below 50 which signals that the manufacturing sector is contracting.
The deterioration in our dashboard is a reminder that we are moving later in this economic cycle and must be ready to make changes to portfolios as needed. Our investment philosophy is rooted in the belief that there is a need to have a risk management process in place. When we believe the risk is too high, or a recession is coming, we have the capability to take action to try and preserve your assets.
Despite our dashboard’s warning signs mentioned above we still have 4 indicators flashing green, while one is yellow, and as such, we continue to believe the economy is unlikely to move into a recession in the immediate future. That said, we do feel there are increased risks of a recession looking out beyond this year. We will continue to monitor trade developments, central bank policy, political and geo-political risks and will look to make changes to portfolios as we get further clarity on the evolving economic environment.
Your TLWM Team
*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.
*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.
*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.
*No strategy ensures a profit or protects against a loss.