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12:00 TUESDAY – Stock Market Report #133 – 9/28/21

by Robert Holman | The Defensive Advisor | www.defensiveadvisor.com


INSIDE: Current market rating, market trends, stock picking, and a free offer.


TO MY EXISTING CLIENTS, THANK YOU FOR YOUR TRUST. We’ve had great success since we started this RIA in mid-2018, up more than 80% in our moderate risk portfolios for the 3-year period ended mid-2021, after all expenses are deducted.


MARKET RATING I’ve gone up to 7.5 (where 0 - 4 is bearish, 5 is neutral, 6 - 10 is bullish) – although I’m much more cautious about the near-term because risks are increasing, while remaining optimistic longer-term.


Last week reminded me of the opening to Dicken’s “A Tale of Two Cities.” To me, the market oscillated between two states - both the best of times and/or the worst of times. Last Monday, the market was bearish and feared “financial contagion” and then spent the rest of the week bullish, trying to convince itself “it’s going to be ok”. The bullishness carried over to this Monday, partly based on evidence that Covid-Delta finally peaked. But, today Mr. Market is bearish again on rising interest rates.


Now some would say, no big deal – this is just the volatility you must get used to in today’s markets. And, they would be right in that to a large degree. Some would say, no big deal – we are just experiencing sector rotation, which is the natural experience as the market bull-cycle ages. And, they would be right in that to a large degree. Some others would say, no big deal - the economy is growing at a slower pace but is expected to grow even better next year. And, they would be right in that to a large degree.


But, it’s bothering me that everybody has an “I’ve got it figured out” view -- and they are all different views. That’s troublesome. And, of course, their view fits what they’ve bought in their portfolio. The different views about what is going to be higher twelve months from today makes me question the majority view that prices will be higher 12 months ahead.


Prices have gotten so high that its getting harder to find things that have a clear margin of safety. It is easier to buy things on the belief that "it can/will go up"; that it's the “better place to put your money” in comparison to other areas. As is typical with late-stage bull markets, it’s hard to find things that have, for example, a 10% or 15% or 20% margin of safety.


ECONOMY … seems to be slowing its pace of increase, and is not meeting the recovery expectations that the market has had for the last 6 months. Confidence indicators, retail sales, and expansion of the labor force are all slipping or have slipped. On the other hand, hourly earnings, the U-6 unemployment rate, and ISM Services are all trending favorably.


Let’s focus in on interest rates and inflation:

· Interest rates are rising, in part because the Fed wants to taper.

· The pace of inflation has slowed from the rapid increases earlier this year.

· But the Fed now says inflation will stay high for longer than it originally thought.

· So, what’s ahead is increasing rates and persistent inflation.

· Both are have a big impacts on equity prices, at least at times.


In a process of calculating financial values called “discounting”, both inflation and interest rates reduce valuations. A third and fourth factor in equity prices is growth, i.e., real growth and expectations. There are many factors that drive growth and expectations. So, these calculations may look simple in theory, but in reality they can be incredibly complex.


China financial concerns, Covid-Delta, government spending, debt ceiling, corporate taxes, personal taxes, inflation, Fed tapering, US economic growth, etc. – these are the heavy traffic issues causing nervousness in the market.


So, when changing conditions call for controlling portfolio risk, we modify our holdings as market risk increases - either selling down or selling out or adjusting our portfolio composition - in order to preserve our capital. Then when the risk-reward profile becomes more favorable and returns to bullish, we invest our cash opportunistically for capital gains. There are always good investment opportunities available.


FREE OFFER for PROSPECTIVE CLIENTS – I would be pleased to give you a complimentary portfolio evaluation and risk assessment -- pointing out any flaws we find in your portfolio and giving you our ideas for improvement – all at no cost to you. Contact me at roberth@defensiveadvisor.com or by calling 972-702-6032 or by sending your contact information via the website link below.


Published every Tuesday at 12:00 noon. For more information on my investment and planning services, or to sign-up for this weekly e-Newsletters, visit my website: http://www.defensiveadvisor.com/services OR http://www.defensiveadvisor.com/contact


Opinions voiced in this post are for general information only and are not intended to provide specific advice to or recommendations for any individual, without complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss. Past performance does not guarantee future results.

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