IS IT ONLY TARIFFS?

The blame for the market’s drop lies squarely on the shoulders of tariffs.  During the period when the markets recently rallied from March 14th through March 25th, there was very little “tariff talk.”  When 25% auto tariffs were announced last Wednesday on the 26th, markets reversed which bled into Friday’s 700 point Dow loss.

A direct result of tariffs is massive capex risks.  Current strong manufacturing data has an asterisk because of the potential impact of tariffs.  We just saw a record high in industrial production for the first time since the 2010s, and factory construction volumes continue to soar.  But capex plans are already being cut back. 

Who knows what the market would be doing without tariff talk, but there are clearly other market concerns.  One of them seems to be the markdown in the Q1 earnings growth forecast from 11% to 7% (source:  FactSet).  With earnings season starting next week, we will soon see Q1 results and guidance for the rest of 2025.

In addition, consumer expectations have cratered, but this seems to be largely based on political affiliation.  Sentiment seems to be far weaker than the fundamentals suggest.  Consumer balance sheets and income remain strong.

There has been a lot of damage done to the prices of individual stocks.  Through yesterday, the S&P 500 index is down 8.5% off its peak, but the Mag-7 stocks have averaged a decline of almost 25%.  Based on technical analysis, it is worth noting that the S&P 500 and NASDAQ 100 have both failed to hold their 200-day moving average.  The 200-day is now locked in as the first high point for the market in its attempt to recover out of correction territory.

The stock market is never a one-way street.  There are plenty of positives the bulls can point to.  First, market breadth has held up very well.  A positive divergence has opened up between the S&P’s cumulative advance/decline line and price.  This means that in spite of lower index prices, the number of advancing stocks equals the number of declining stocks.  See the graph below.  Notice the A/D line has been flat.

S&P 500 PRICE VS. CUMULATIVE A/D LINE

 Source:  Bespoke Investment Group

Next, the AI boom lives on despite a steep decline in AI stocks, in our view.  The NASDAQ’s action since ChatGPT was released in November 2022 has been most correlated to the release of the Netscape web browser in late 1994.  If the ChatGPT/Netscape pattern holds, this bull market has years of runway left.  Look at the tight fit in the graph below:

NASDAQ COMPOSITE % CHANGE IN THE 3 YEARS AFTER NETSCAPE RELEASE VS. CHATGPT RELEASE

 Source:  Bespoke Investment Group

Labor markets have certainly cooled from rip-roaring levels observed coming out of the pandemic, but things still look healthy.  Jobless claims and job openings have been stable and labor income has been strong.

Corporate profit margins remain very high relative to history, with Q4 2024 showing the highest corporate profits share of gross domestic income since the 1950s.

Inflation remains mostly stable for now.  Although last week’s Personal Consumption Expenditures (PCE) release was disappointing, March CPI is forecast at just .01% month-over-month based on the Fed’s CPI Nowcast tool.  Headline and core CPI along with PCE are all projected to have 2-handles on a year-over-year basis when March data is released in April.  We do not fear a hawkish Fed at this point even with elevated tariff-related inflation expectations.

That’s a lot of information to digest.  Bulls need the March 13th low to hold.  Otherwise there may be more pain ahead.  The average correction is about 15% historically, another 6% from current levels.  But given that stocks are up roughly 75% of the time over all 12-month periods, bears are sticking their neck out if they expect stocks to be down over the next 12 months.  We continue to focus on opportunities for our clients, both new stocks based on marked-down prices, and adding to existing shares in client portfolios.

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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

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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