Stock Market Breather
John THur, CFA

John THur, CFA

John Thur – John Thur – Should The Market Take A Breather?

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The answer is YES! We are seeing the market melting down a bit as evidenced by September’s performance.

September performance for the S&P 500 (-4.7%), was the worst month since March 2020. The question now is, will it continue or was that enough? All major asset classes fell in September, except cash. With the S&P 500 up 16% YTD we are facing some serious issues ahead, including serious disruption to the worldwide supply chain, above average inflation for the last 5 months, Fed signals of tapering QE before year end, corporations issuing lower sales and earnings guidance and an explosion in energy prices. I am seeing GDP guidance for the third quarter at 1.8%, which is quite a bit below earlier estimates.

I am not looking for the S&P 500 to eclipse its early September high before year end, but I also do not think we will get any major sell off either. I am looking for sectors and individual stocks to perform at different levels, some selling off more than others. The key will be the 7 mega cap companies that represent 25%+ of the weighting in the S&P 500. This includes Microsoft, Apple, Amazon, Alphabet, Facebook, Tesla and Nvidia. I think these stalwarts will stay strong and support the Index as a whole. As you will notice, we only own a couple of these names. They are all great companies, but some are just too expensive and are too widely owned creating an inverted risk/reward ratio.

The Markets are priced for perfection and some of the premium should get pared back in light of the headwinds and questions around interest rates, inflation, margin compression, supply and delivery issues and how all of this will affect corporate sales, earnings and forecasts for growth of such, in the 4th quarter 2021 and into 2022. I wish the Fed would have started tapering in the spring, when these other issues were not so prevalent. Tapering is necessary but may get blamed for any economic slowdown, which I think would be a mistake. Tapering could create some deflation of hard assets but should not hurt a strong economy. The tech sector, especially software, that will not have supply issues, will do well, but is expensive. The transportation, chemical, industrial, travel, autos and semi-conductor sectors will take longer to improve but are a lot cheaper. Fin tech and certain healthcare names should do well also.

So, I am positive on stocks but will use the 4th quarter to deploy cash smartly and rebalance where situations allow. I am negative on the bond market and will remain in short term notes and invest in private investments where yields and the risk/reward profile is far more favorable. I expect volatility in Q4 and sideways movement for stocks until the uncertainties we have discussed get more clarity. The markets do not like uncertainty.

Investment Advisory Services are offered through Independent Solutions Wealth Management, LLC, an SEC Registered Investment Adviser. All opinions expressed by John Thur are solely Thur’s opinions and do not reflect the opinions of Independent Solutions Wealth Management, LLC (“ISWM”). You should not treat any opinion expressed by Thur as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion for educational purposes only and does not constitute investment, legal or tax advice, an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. Thurs’ opinions are based upon information he considers reliable, but neither ISWM nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Thur, ISWM, its affiliates, and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Thur’s statements and opinions are subject to change without notice. No part of Thur’s compensation from ISWM is related to the specific opinions he expresses. Past performance is not indicative of future results. Neither Thur nor ISWM guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned may not be suitable for you. This material does not take into account your particular investment objectives, financial situation, or needs and is not intended as recommendations appropriate for you. Before acting on information, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from an investment adviser.

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