As the Federal Reserve introduces the first round of rate cuts, markets are attempting to come to grips with a new investment paradigm, which is showing signs of cooling.  Despite the recalibration of our portfolio, we’re not abandoning ship. Looking beyond the immediate horizon, our medium-term outlook remains cautiously optimistic, with a view that recession odds remain low in the near term.

The current market conditions continue to show a preference for stocks over bonds.  By extending some duration to the models, the committee is looking to lean into an improved diversification role of core bonds, setting the stage to potentially capitalize on the opportunities that frequently emerge in the wake of a rate cutting cycle.  Our research also reveals the autumn period from mid-September through early November in presidential election years has tended to be more volatile than usual, with increased vulnerability to sharp downside moves. The elevated uncertainty surrounding the upcoming election adds additional complexity that is difficult to handicap. Given the sharp divide in the parties’ expected policy, and the expectations of a close race, many real economy actors are delaying major capital allocations and business-defining bets to after election night. In this state of uncertainty any lack of liquidity has the potential to trigger significant market fluctuations and is compounded by the chance of delays or prolonged uncertainty about the outcome.  A relatively tranquil melt up in mega cap stocks the first 6 months of the year was disrupted by history-making single-day selloffs, rotations, and V-shaped snapbacks, telltale signs of a market more susceptible to headline-induced downdrafts.

The LSA Investment Policy Committee; will be implementing model updates to the mutual fund, and ETF models.  These changes will be released early October with a planned review of variable annuity models to follow.   Below you will find a breakdown of the upcoming changes:

• Posted Tuesday, October 1^st – ETF, ETF Tactical, PC IQ, Private Client Blended, Private Client Traditional, Private Client, Private Client Tax Efficient, Bear Market Entry, Cautious Bear Plus, and Private Client L100k – targeted model update – Tuesday, October 8^th.

*The mutual fund model revisions impact the NTF models as well.

*As a reminder, the Revision Explanation notes are posted in the “Portfolio News” section on each of the platform home pages.