Corporate earnings season has just started for Q3, but early results are positive. Industry estimates for members of the S&P 500 indicate profits of 1.3% higher than a year earlier – a nice improvement from the second quarter’s decline of 2.6%.  S&P 500 earnings, excluding energy stocks, are expected to show a 6.2% gain after rising 3.6% in the second quarter.  Expectations for the fourth quarter are up a robust 10.8% from a year earlier.  Profits are making a comeback.

There is, of course, plenty that could go wrong, including recession and war.  But if earnings growth keeps picking up, the stock market may be headed higher anyway.

A generation of investors have been brought up on the premise that U.S. Treasury notes and bonds are a safe-haven asset. If you wanted to park your money, Treasuries were the way to go.  But as of the end of September, the 20+ year U.S. Treasury bond ETF (TLT) was at new lows and down 51% from its all-time high in August 2020.  That is almost as large as the 57% decline experienced by the S&P 500 during the financial crisis and worse than the 49% decline in stocks during the dot-com bust.  Treasuries riskier than stocks?  What has this world come to?  Keep in mind when TLT was peaking, the Fed was assuring the market that rates would remain low and stable.  Now the Fed is saying “higher for longer.”  Can we really trust the Fed’s forecasting?

How can investors avoid the volatility and awful performance of long-term Treasuries?  We recommend buying only short-term and medium-term bonds (mostly short-term) to avoid the interest rate risk of long-term bonds but still pick up a healthy yield.

 

 

WAR

Israel is tiny relative to the global economy with a GDP roughly similar to that of Colorado, and the Gaza Strip even much less relevant.  So direct disruptions to global value chains from the war are unlikely to be significant or persistent.

However, geopolitical headlines can drive market moves.  When news of the war broke out, Treasury yields plunged.  But these moves should not last.  As a general rule, for every spike in oil, plunge in Treasury yields, or downdraft in stocks due to the conflict, we would expect a quick reversal. 

There is one notable exception in this case.  If the conflict broadens to include war between Israel and Iran, disruptions to the global economy could be enormous.  Iran would likely block the Strait of Hormuz, a passageway from the Persian Gulf to the open ocean that handles 17 million barrels of oil exports per day.  In that case, oil prices could spike to over $100 a barrel, in our opinion.  The Strait of Hormuz also hosts about one-quarter of global LNG supply.

We assume this problem would be dramatic but short-lived as the U.S. would get involved to break the log jam.  But how would investors react to the U.S. troops being involved in the war?  Not well, we would guess.  Many investors are surprised the S&P 500 is up since the first headlines of war.  Our view is that other issues are more important to investors in the short term, like corporate earnings season.

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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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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

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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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