This earnings season (Q2) is still very young, but beat rates in both revenue and profits are well above average. Yet share-price reactions to earnings reports may be suggesting that the good news is already priced in – at least in the short-term.

We are seeing quite a bit of intraday selling of stocks reporting earnings, regardless of the earnings result.  This suggests investors may be taking profits using a “buy the rumor, sell the news” strategy.  Maybe this is an indication of a tired market that needs a pause.

President Trump has kept up the pressure on the Fed: “interest rates must come down,” “we’d do better if we had lower rates,” and that he believes Fed Chairman Powell will “do the right thing” with policy.  It is not hard to see that lower rates would drive faster economic growth, though they also risk higher inflation.

Is monetary policy unusually tight right now?  The easiest tool to use is to compare the Fed Funds rate to recent inflation trends.  Relative to inflation, there is certainly an argument for cuts, but not dramatically lower policy rates.  That is especially true given strong financial markets, labor markets holding up, and solid economic growth.  The baseline expectation for the Fed should be one cut this year, although there is room for two cuts if labor markets weaken.

Price/earnings ratios for stocks are much less in Europe than the U.S. As a result, many Wall Street analysts are recommending moving money from U.S. stocks to Europe.  This has worked so far this year.  Most stock markets in Europe have outperformed the S&P 500 this year, although our market is catching up.

Do we think this trend can continue?  Yes, this trend may continue in the short term due to the valuation gap.  But the U.S. has much more to offer in the longer term, including being the global leader in the development of artificial intelligence.  We expect U.S. outperformance will re-emerge later this year or next.  After all, the S&P 500 has gained nearly 10x as much as the rest of the world since the end of 1987 (2500% versus 288%, source:  Bespoke Investment Group).  It is never a good idea to bet against U.S. stocks.

 

1,000 DAYS AND COUNTING

The current bull market is now an adult crossing over the 1,000 day mark.  The average bull market lasts about 1,000 days with an average gain of 114%.  This compares to a 78% gain for this bull to date.  So we have some catching up to do.

We still expect this bull market to continue, but not without taking a breather after its massive run off the April low.  Stocks don’t go up in a straight line, although it may seem that way with the S&P 500 and NASDAQ reaching all-time highs seemingly every day.  Maybe underwhelming earnings season stock performance is an indication that stocks need a rest.

We have written numerous times previously about our reasons for staying bullish.  Another reason is the surging money supply.  Financial markets continue to be awash with liquidity.  Money supply, as measured by M2, stands at an all-time high.  It jumped 4.5% year-over-year in May.  Since 2020, it has risen 45%.  One definition of inflation is more money chasing fewer goods.  There is certainly more money chasing financial assets today.

There is a lot of market news this week.  We have the Fed presser tomorrow about the economy and interest rates, and the July jobs number on Friday.  And plenty of Q2 corporate earnings reports.

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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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If you find that your portfolio’s investment returns are dominated by a small handful of stocks, you are not alone. We have experienced the same thing. Burton Malkiel (renowned author of the classic “A Random Walk Down Wall Street”) did a recent study about this...

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