This quarter’s earnings season is off to a good start as 81% of companies reporting have beat EPS estimates, and 80% are beating revenue forecasts. We remain focused more on what companies will say on the conference calls about four key areas and view these factors as near-term stock market risks:  1) supply chain bottlenecks; 2) climbing oil prices; 3) inflationary labor costs; and 4) slowing economic growth in China.  Although we remain optimistic on U.S. stocks and still think we are in the early/mid-cycle stage of the bull market, this energizer bunny stock market will eventually pause.  This earnings season has the potential to be the catalyst.

According to Barron’s Fall 2021 Big Money Poll, investors think the three biggest risks the stock market will face in the next six to twelve months are fiscal/monetary policy blunders, inflation, and rising bond yields. Fed tapering, expected to start in December, is a distant seventh.  Even further down the list is a Covid resurgence-only 3% of respondents said that is a concern.

The Baron’s poll finds 50% of managers bullish on equities in the next 12 months, down from 67% in the spring.  Twelve percent are bearish, up from 7% in the last survey.  The remaining investors are neutral.  According to Bespoke Investment Group, net bullish sentiment is at its lowest point since April 2020 – during the beginning of the national lockdown.  Given the sharp rally in stock prices since the market low in early October (up 4.5%), sentiment once again came through as a contrarian indicator.

 

EARLY SIGNS OF EASING INFLATION ?

 

If you have been visiting the grocery store, gas pump, an online retailer, or anywhere else, you have noticed a sharp rise in inflation.  In fact, the consumer price level has increased 5.4% in the last 12 months, and 6.5% on an annualized basis so far in 2021.  It hardly feels “transitory.”  But there are early signs that the inflation rate may be peaking.  Here are three indicators showing the rate of inflation may be headed lower:

First, the single biggest headwind for the global supply of goods is shipping costs which have been soaring to uneconomic levels in the spot market.  The most ships are on order now since 2011, accounting for nearly 10% of the current container fleet by ship count.  We may already be starting to see some signs of easing in shipping prices.  Last week the Financial Times reported that spot rates of shipping from China to the U.S. have been cut in half since their peak in September.

Second, combining the manufacturing and service sectors, 74 commodities were up in price recently and six were down for a net of 68.  The peak monthly reading on combined basis was in May at 93.  Peaks in the commodity survey have often coincided with peaks in the CPI.  Of course this could reverse and head higher in the months ahead, but based on prior experiences, once the net number of commodities rising in price peaks, it usually starts to roll over.

Third, while the semi industry is supply constrained for now those constraints won’t be permanent.  As new supply comes online the shortage of chips will alleviate.  As shown below, sales of semiconductor equipment, a key input for expanding capacity of chip production, have soared:

                                                                        SEMICONDUCTOR CAPEX IS SOARING

Source:  Bespoke Investment Group

Other signs of inflation have not cooled yet, so it is a tug-of-war between dozens of inflationary indicators.  But these three gauges are giving us hope that inflation measures are peaking.

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Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

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This is achieved through an ongoing assessment of market risks given your specific financial situation and goals.

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Leadership Team

Richard Furmanski

Richard Furmanski

CFA

has been a portfolio manager and analyst for over 35 years. He manages conservative, tax-efficient portfolios for both pre-retirees and retirees. His lower risk approach appeals to investors who want less volatility and competitive risk-adjusted returns.

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Mary Ellen Adam

Director of Operations

has been in office administration for over twenty years. Her experience includes customer service, firm operations, and office administration. She interacts with our clients on a day-to-day basis and handles any requests that may arise.

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Frequently Asked Questions

If you can't find the answer to your questions here, feel free to give us a call at 847-847-2505

Do you manage both stock and bond portfolios?

Yes. We build a portfolio of conservative, high-quality stocks and hold them for the long-term. The average holding period is 4 – 5 years. Our focus is on stocks that are suitable for retirement portfolios.

Our high-quality bond portfolios are designed to provide both income and stability of principal. Bonds provide the anchor for balanced accounts (those holding both stocks and bonds).

What is your investment philosophy?
We take great care in purchasing only high-quality stocks and bonds intent on a multi-year holding period. Portfolio turnover and taxable realized gains are modest in comparison to other active managers. We do not time the market but will become more defensive, in terms of stock holdings, when market conditions warrant.
Will the portfolio be managed in accordance with my financial goals?
Yes. Each of our clients has a custom-tailored portfolio. These custom portfolios are designed to meet specific client objectives with a thoughtful approach to specific constraints such as risk tolerance. And as each client’s situation changes, the portfolio does as well. There is no cookie cutter approach.
What kind of expertise do you have and how can that help me in difficult markets?
We have been working with high-net-worth clients like you since 1982. Over that time we have helped them to navigate several bear markets and financial crises (including the stock market crash of 1987). We hold the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations.
Are you sensitive to taxes when managing portfolios?
Yes. Our holding period for an individual stock averages 4 plus years which means our turnover is low and realized gains can be carefully managed. Further, where possible, we tax loss harvest small losses as a way of offsetting gains taken elsewhere in the portfolio.
How have you performed?
Results will differ by client and the level of customization but we have provided competitive investment returns for many years.
How do you charge for your services?
We charge a management or consultant fee based upon the size and level of customization of the account. As the account grows, we benefit together.

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