What You Should Know

2019’s trajectory of positive returns in the stock market continued through the month of July, marking the second straight month of positive returns. The S&P 500 closed the month positive 1.44% on a total return basis, which tallies 2019’s YTD total return to 20.24%. Most of July’s return was attributed to a strong earnings season. 333 companies in the S&P 500 had reported their earnings by the end of July, with 78% of those companies beating their estimates. Along with the positive performance of earnings, advanced estimates of Q2 2019 U.S. GDP revealed that current expansion is officially the longest in U.S. history. Consumer sentiment, as reported by the University of Michigan, remained mostly unchanged in early July from June, continuing the trend of favorable levels since the beginning of 2017. Inflation expectations from consumers moved slightly lower in the year-ahead rate due to heightened interest in the Federal Reserve Interest Rate policy. Regarding interest rate policy, consumer expectations were in line with the Fed’s decision to cut the Federal Funds rate for the first time since 2008 by 0.25% after the July 31 FOMC meeting. Although the expectation before the Fed meeting was that they were going to make a 0.25% reduction in the Fed Funds rate, U.S. equities markets immediately sold off following the announcement, closing the day 1.09% below its open. For market participants, the surprise was not that the Fed made a change to its interest rate policy, it was the word used by Fed Chairman Jerome Powell, specifically his statement that “We are thinking of it as a mid-cycle adjustment to policy.” Before the announcement of the rate cut, there was a 10% probability of rates moving down an additional 0.50% by year-end. However, following Powell’s comments, that probability quickly moved to 0%. The Federal Reserve isn’t alone as the only central bank that is making cuts to their interest rate policy, as European Central Bank President Mario Draghi stated earlier in late July that he expects key ECB rate to remain “at their present or lower levels.” Such activity from the ECB will more than likely keep the strength in the US dollar up, which can add pressure to countries in emerging markets.

Tempus Strategy Series Overview

Tempus offers 12 actively managed investment strategies ranging from Aggressive to Conservative. Market and Economic risk factors are monitored on a regular basis and allocation changes and/or holding changes are made based on the decisions made by the Tempus Advisory Group Investment Committee. Additional details on each strategy can be found on our Resources page.

TEMPUS SMART GROWTH

Strategy trading activity commentary: A good portion of short-term volatility in the nine months has been magnified by trade government negotiations and interest rate policy headlines. However, during the month of July those risks faded a bit into the background as China slowed their talks with the U.S. and the Federal Reserve prepared for their July 31 FOMC meeting. The majority of the companies in the S&P 500 reported their earnings, beating expectations which allowed for a continuation of 2019’s performance. As mentioned above, economic indicators such as the National Activity Index, Total Retail Sales, and the Financial Stress Index provided some relief to the U.S. economy. Furthermore, the reporting of the economic data provided the necessary information to warrant a conviction to maintain the current positioning in all strategies.

Strategy Changes:

      • None: Due to the key calculation metrics for this series of investment model portfolios, we found no need to make any changes to the equity exposure at this time.

TEMPUS MANAGED RISK

Strategy trading activity commentary: July’s performance in the broad market was a continuation of the previous four months of positive returns. Headline risk was relatively muted during the month, and a strong earnings season from the S&P 500 helped push markets higher, closing the month +1.44. Overall, long-term market risk metrics remained relatively muted and did not warrant any changes to be made to the stock portion of the model portfolios. Meanwhile, economic indicators such as the National Activity Index, Total Retail Sales, and the Financial Stress Index provided some relief to the U.S. economy.  Furthermore, the reporting of the economic data provided the necessary information to warrant a conviction to maintain the current positioning in all strategies

Strategy Changes:

      • None: Due to the key calculation metrics for this series of investment model portfolios, we found no need to make any changes to the equity exposure at this time.

TEMPUS RESEARCHED FIXED INCOME AND RESEARCHED STRATEGIC INCOME

Strategy trading activity commentary:  Although the fixed income market had accurately anticipated the change in the Federal Reserve’s interest policy which reduced the Federal Funds rate by 0.25% on July 31, the US High Yield market experienced a notable amount of volatility during the month of July as investor’s appetites for risk had grown by a measurable margin. When we have an opportunity to reduce risk and find a desirable amount of yield, then we pursue the ability to execute those changes. Our portfolios capacity to move from US High Yield to US Treasuries enables a smooth glidepath for long-term performance, and we will continue to monitor the conditions of the US fixed income market through our many data sources.

Strategy Changes:

      • Researched Fixed Income has removed the US High Yield position and replaced it with US Treasury.
      • Researched Strategic Income has removed the US High Yield position and replaced it with US Treasury.

RESEARCHED BALANCE INCOME

Strategy trading activity commentary: None

Strategy Changes:

      • None, the strategy rebalances and calculates the target interest rate (2% plus the 10 Year US Treasury) on a quarterly basis. As such, there are no changes at this time.

Tempus Recommended Holdings Overview

The Tempus Advisory Group Investment Committee performs a quarterly due diligence review of all current holdings to ensure each remains suitable for continued inclusion in our strategies.  Our selection process begins with a low-cost/high-quality bias, which is further enhanced through our research partner’s “WAR” (Wins Above Replacement) methodology, resulting in a composite rating and a decision to either:  Hold, Place on Watch, or Replace.

Changes as of Q2 2019:

      • Replace: IUSB, SCHO, BKLN, PFF
        • PFF replacement does not apply to the Researched Balanced Income strategy
      • Watch: RDIV

Financial Advice is offered through Mid Atlantic Financial Management, Inc. (MAFM) a Registered Investment Advisor. Tempus Advisory Group is not a registered entity or a subsidiary or control affiliate of MAFM.  The information contained in this e-mail and in any attached files is confidential and intended for internal use of the individual named in the email. This information should not be duplicated or distributed unless an express written consent is obtained from Tempus Advisory Group in advance.  If you are not the intended recipient, please notify me immediately and delete any attachments.  The views expressed here reflect the views of the Tempus Advisory Group Investment Committee as of 7-31-2019. These views may change as market or other conditions change. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Past performance does not guarantee future results and no forecast should be considered a guarantee either

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