While the equity market continues to grind higher in spite of headwinds like the Delta Covid variant, the bond market appears to be pricing in an economic slowdown of some magnitude. Persistently low interest rates and tight credit spreads (the interest rate difference between US Treasuries and corporate bonds), in the face of robust GDP growth and higher inflation readings, have economists and financial market analysts scratching their heads.  I’m in that group.

With the recent surge in covid cases, kids returning to school, and ongoing pandemic-related challenges, the fall could make for some volatile economic and financial activity.

From an investing point of view, I reflect on this quote from the Irish author of the Skulduggery book series.  “Tides do what tides do – they turn.” – Derek Landy

My concern is that given where the markets are today, a turn in the tide could be significant as shown below:

“The chart below illustrates the percentage of stocks as a percentage of total household financial assets. The concept behind this data series is that when investors as a group become overly exposed to stocks, the probability of everyone reacting negatively to a financial shock is heightened. Interestingly, the most recent peaks in the data series occurred in 1999 and 2007. Both periods were good times to be thinking about risk management. As shown below, the current reading as of March 2021 is higher than in either of those periods.”

While this chart is as of March 31, 2021, the continued increase in equity markets since then has only extended this relationship.  This is likely true in your case as well.  Your home has certainly grown in value as has your 401k and the portfolio we manage for you.  But so has your exposure to stocks relative to your total financial assets.

We are holding our allocations to equity and bonds at their current level but we have tightened up our risk management levels, which will kick in if the “tide turns”.

Please call us if you have any questions or concerns.  Feel free to share this report with any family and friends who would benefit from it.

September Calendar of Events (comments and additions for future months are always welcome)

•  

Sept 6^th         Labor Day

Sept 6^th          Rosh Hashana begins – wishing all our family, friends, and colleagues of the Jewish faith Shanah tovah um’tukahar of Events

Sept 11^th        Patriots’ Day – honoring those who lost their lives on 9/11/01.  It’s the 20^th anniversary of that fateful day.  Hard to believe.

Sept 12^th       Grandparents Day

Sept 15^th       Yom Kippur- Chag Sameach

Sept 22^nd       Autumn begins – let’s pray it doesn’t include another COVID spike

Best regards,

Jim

Sources:  Ned Davis Research, Nottingham Advisors, Bespoke Investment Group

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money. Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

“We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.” – Warren Buffett

“ Patience is the calm acceptance that things can happen in a different order than the one you have in mind.” -David G. Allen

I start this report out with 2 quotes that reflect where I am in terms of the market and your portfolio.

While the stock market (S&P 500) has continued to climb, there are a number of factors facing the markets in the near-term that have me in a patiently waiting mode.

The first factor is that August is historically the weakest month of the year for stocks.  “August has been the 2nd worst performing month for the S&P 500 index over the last 30 years (1991-2020), losing an average of 0.2% (total return) over the period.”  (BTN research)

The second factor is that the market is WAY over due for even a mild decline.  “US equities have continued their stellar performance despite high valuations that have raised correction concerns. Following last week’s performance speedbump, the S&P 500 has persisted upward. It has now been 184 trading days since the last 5% S&P 500 drawdown. This marks the 15th longest period without a meaningful pullback and is significantly above the historical average of 97 days.” (Goldman Sachs)

Source: Goldman Sachs Global Investment Research. As of July 29, 2021.

The third factor I am watching is the market history during a new President’s 1^st term.  This year it is especially important as the economic reopening is threatened by the spread of the Delta variant of Covid, primarily in the unvaccinated population.  The other issue is the Infrastructure legislation currently working its way through Congress.  While the Senate appears poised to approve the bill, the House will not even address the bill until September and there are members in both parties not happy with the Senate bill.

Having said all of the above, we continue to look for opportunities that can be taken advantage of.  For example, during the last week of July a number of major companies reported earnings, and while reporting phenomenal numbers, in almost every case the stock prices for these companies fell.  We saw this as an opportunity to invest in high quality companies like Apple, Amazon, Google, Facebook and a few others, at discount prices.  Time will tell if I was correct but I feel these are wonderful long-term investments.

Please let me know if you have any questions on this report.

August 2020 Calendar of Events   (comments and suggestions always welcome)

                August is National Immunization Awareness Month – How ironic given the Covid-19 virus and so many of our fellow citizens refusing to get vaccinated

August  8^th        My birthday!   It is also International Cat Day.  Meow to all the cat lovers out there

August 16^th      National Tell a Joke day – we can all use  some humor these days

August 24^th      National Waffle Day – yum           

August 26^th      Women’s Equality Day – as the son of a single mom and the father of 3 wonderful daughters and 2 amazing granddaughters, I support improving quality for women in all areas.

Please stay safe and well.

Sources: Goldman Sachs, Oppenheimer, Macro Analytics, BTN Research

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

First, I want to wish you and your loved ones a safe and happy July 4^th holiday. Hopefully it is close what we use to consider “normal”.

If felt that 2 quotes were in order for July!

There’s not many things less important than the score at halftime.” – Bill Self

This one relates to both the markets and the virus.  The financial markets posted very solid growth in the first half of 2021 – putting in the 2^nd best first half since 1998. But that score won’t matter depending on what happens over the rest of the year.  The same is true about the virus – major progress has been made but vaccine hesitancy and the Delta variant and future new variants could risk the economic reopening and a stock market decline.

“It’s tough to make predictions, especially about the future.” – Yogi Berra

This quote also relates to both the markets and the virus. With the markets and the economy, the solid growth so far this year means stock valuations are high, investors have piled into stocks and inflation is rising.  The high bar set in the first half of the year could lead to disappointment which could serve to limit growth over the next 6 months. As for the virus, the test will come in the fall when schools reopen and people move back inside.

My outlook is that the economy continues to reopen, albeit at a slightly slowing pace.  This should be supportive of continued growth in stocks, again at a slower pace.  At the moment, we remain broadly diversified with a tilt towards stocks over bonds but will adjust accordingly as we move forward.

Please let us know if you have any questions or concerns.

For the historically minded, March 16, 2020 will be added to the list of key dates in Internet history:

• 1972: Email invented
• 1975: Personal computer invented
• 1983: The Internet is created
• 1989: The World Wide Web is born
• 2020: The work world went virtual. You were there!

July Calendar of Events   (comments and additions for future months are always welcome)

• July is National Picnic and National Parks month – please enjoy being outside with family and friends.

July 1^st             Bureau of Internal Revenue (the IRS) founded in 1862– betcha nobody celebrates this birthday 

July 4^th            Independence Day  – it will certainly be a different kind of celebration this year

July 11^th          My daughter Ryan’s birthday

July 23^rd         National Ice Cream Day   – Breyers vanilla with Hershey’s chocolate syrup is my go-to

I hope you find this information helpful.  Please share it with family and friends.

Best regards

Jim

Sources:  Nottingham Advisors, CNBC

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

Financial markets basically traded sideways during May, with stocks gaining 0.5% (S&P 500), while interest rates declined slightly dropping 0.05% (US 10yr Treasury).

We have a number of key economic reports and events in June that may dictate whether the market continues to trend sideways or makes a move either up or down.  On June 4^th we get the May Jobs report, which will be an indication of how the job market is recovering with the economy opening up.  June 15-16 is the next Federal Reserve Board meeting, and I will be watching how they respond to the rising inflation we are seeing.  June 30^th brings the start of 2^nd quarter corporate earnings reports.

June is also a weak month for stocks, producing positive results only 40% of the time over the last 20 years with average returns for the month roughly negative 1%.

Two other factors I am watching closely: 

1. The total market capitalization (stock price x # of shares) is now at an extreme level compared after a crisis, which then had a multi-month, double-digit pullback before resuming the rally                        
2. The March 2020 rally to present is starting to resemble a pattern to the 1982 and 2009 recoveries to GDP.  This is one of Warren Buffet’s warning signs that stocks are expensive. 

Based on the above, I am operating as fully invested bear.  In the short to medium term, I am cautious about a potential correction.  Longer term, I believe the bull market and economic recovery from Covid-19 has further room to run.  As such, we have tightened up our risk levels but remain fully invested in broadly diversified portfolios and will adjust as conditions dictate.

P.S. Thank you for your referrals. They are making a big difference in my practice. Feel free to share my name with your friends on Facebook or LinkedIn.

I want to extend a special thanks to clients & colleagues who have recently referred us to family and friends:  Greg & Valerie W.

June Calendar of Events   (comments and additions for future months are always welcome)

• June is LGBTQ Pride Month.  I’m an incredibly proud father of a daughter in an awesome same sex marriage.  So let’s all work towards acceptance and inclusion of people regardless of their sexual orientation.

June 14^th        Flag Day                  

June 20^th        Summer begins – it’s certainly going to be a different summer.  Enjoy it safely       

June 20^th        Father’s Day  – wishing all father’s, grandfathers, and great grandfathers a wonderful day.

Sources:  Bloomberg, Ned Davis Research, Day Hagan Asset Management, CNBC

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

“Risk is good. Not properly managing your risk is a dangerous leap.”  – Evel Knievel

We believe the strategic case for risk assets remains favorable, with ongoing support from: 1) economic reopening and normalization, 2) fiscal support, 3) pent-up savings, and 4) historically easy financial conditions. As we move into the post-COVID-19 world, we believe the recovery will be non-linear and the opportunity set highly dynamic.  We expect the economy to show superior growth for the balance of 2021, while the financial markets have already priced in a good deal of this growth.  The financial markets will need to contend with the potential for rising inflation driven by the economic growth and the potential for the FED to reduce monetary accommodation to fight inflation.   Come 2022, we expect economic activity to fall back into a normal range of 2%-3% per year. 

On the investing front, we are on alert as despite a barrage of positive economic data recently and amazingly positive corporate earnings reports, there has been a  pattern of sell-the-news profit taking in the past two weeks of April. It also comes at a time when defensive assets are showing relative strength compared to growth assets. The move isn’t large enough to break through recent support, but it was significant enough to establish a divergence between the movement of major market benchmarks and their volatility measures. This kind of price movement is typical when markets are faltering near highs. It implies that institutional investors often want to quietly slip out of their positions before the demand for stocks becomes too weak and creates a rush of sellers.  

The chart below shows that the S&P 500 Index and the Nasdaq 100 Index, have both showed a subtle pattern of higher highs over the past two weeks. Meanwhile, the Cboe Volatility Index (VIX), and the Cboe Nasdaq Volatility Index(VXN) are showing a pattern of higher lows (they should be showing a pattern of lower lows). This makes a subtle implication that market makers are a bit worried about the potential for falling prices.

That seems incongruous given the excessively positive data from both the private and the public sector that the economic recovery is progressing rapidly. But this is the kind of clue that experienced investors look for. When price action doesn’t follow what seems to be obvious for a given narrative, then we start to wonder if a larger, less obvious dynamic is building. It may not materialize into a full blown change of trend, but if it does do so, this is the kind of subtle warning the market might give.

Therefore we have tightened our risk management thresholds while simultaneously shifting our portfolio allocations into areas that continue to show strength.

We hope you find this report informative.  Feel free to call us with any questions or concerns.  Please share this report with anyone you feel will benefit from it.

May Calendar of Events   (comments and additions for future months are always welcome)

·      May is National Mental Health awareness month.  Nearly 44 million American adults, and millions of children, experience mental health conditions each year. Let’s all get educated on this issue and work towards acceptance and inclusion of people dealing with mental health issues.

May 5^th                      Cinco De Mayo – stay thirsty my friends                 

May 9th                     Mother’s Day – wishing all mom’s, grandmothers, and great grandmothers a wonderful day. Hopefully soon we can get together to celebrate.

May 15th                   Armed Forces Day.  Dedicated to recognizing those presently serving in our armed forces

May 23^rd                    My daughter Caryn’s birthday  

May 31st                   Memorial Day – let’s remember and give thanks to all who served our country

Jim

Sources: Investopedia, Bespoke Investment Group, Goldman Sachs

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.