April 1st, 2025

“This bullish sentiment going into the new year can very well be undermined by the increasing international discord given the challenges in the Middle East, China, Russia, Iran, etc.”

From Q4 Newsletter

Market Overview

Q1 2025 is in the book! Good riddance! The returns are as follows:  

DIJA. (.92)%

S&P 500. (4.37)%

NASDAQ. (10.28)%

FMG CORE. (6)%  

Are we having fun yet? The year started off on a downward trend following the year-end selloff. As we said then, the markets were experiencing a post-election hangover, as well as investors repositioning portfolios to reflect the new world order. Market participants had grown tepid once the realities of many of the Trump proposals were thought through (more on that later).

Markets finally bounced in the second week of January when economic reports indicated that inflationary pressure appeared to have subsided at the consumer level. This information provided the catalyst the market was looking for and we got the market bounce we needed. Then came DeepSeek sending NVDIA, Broadcom, and every company with AI affiliation spiraling, resulting in the worst one-day Tech industry performance in three years. NVDIA shed some $600 Bil in value alone, the largest one-day devaluation in history. DeepSeek? What the heck is that? As it turns out, DeepSeek is a Chinese based AI start up that announced a revolutionary AI process and product. Accordingly, this product will do what all the AI companies are racing to do quicker and more powerful, utilizing less energy at a cheaper price. Lions and Tigers and Bears, oh my! How can some no name startup create such a stir? Welcome to the world Tech industry investing. It is not for the risk averse or fainthearted. As typical, the markets overreacted on the downside. Most stocks snapped back once there was a better understanding of DeepSeek and how it would impact the rest of the AI companies. However, Nvidia continued to trade down as it has the most exposure to the DeepSeek threat. Stay tuned.

To add to the market volatility created by the AI scare, newly minted President Trump came out swinging, post inauguration. In his “Shock and Awe” strategy, President Trump signed a litany of Executive Orders – over two hundred of them – that caused heads to spin. His actions sent the message that there was a new sheriff in town. Between his attacks on illegal immigration and DEI, his intense interest in Greenland and the Panama Canal, and the aggressive endorsement of crypto currency, chaos was the call of the day. Then, in the last days of January, the President lived up to his promise and announced that he was imposing tariffs – a tax on imported goods - of 25% on Mexico and Canada, and 10% on China. This was not received well by Mexico, Canada, or China, but even less so by the investing public. Mexico and Canada immediately responded with retaliatory tariffs sending the market into a tailspin. Any basic course in economics will conclude that there are no winners in a trade war, however, there are two guaranteed loser: consumers and market participants! Signs of inflation came roaring back in mid-February when the CPI ticked up, all but dashing the hopes of an interest rate cut happening anytime soon. And, with the constant threat of tariffs waiting in the wings – which would clearly be inflationary – even the thought of an interest rate hike was starting to be discussed. The fears of what is yet to come by the impact of tariffs came when Walmart, long considered the thermometer for the American consumer, provided the first shot across the bow when it reported earnings in the third week of February. Though they reported stellar earnings, they spooked the market with their “going forward” statements. The company strongly suggested that future earnings would be adversely impacted by the new expense structure created by the forthcoming tariffs. Walmart sources much of its products from Mexico and China. Tariffs would be a double-edged sword of damage as costs of goods would increase by the amount of the tariffs which would hurt their profit, and as well, they would need to pass on some of the higher prices to the consumer which would of course, be inflationary. Soon after, a consumer sentiment report came out, and to no one’s surprise, it was weaker than expected. In fact, it was the lowest level in four years. The markets responded accordingly and went into a downward spiral, recording the worst week of the year and thus erasing all the year-to-date gains. The month ended with the worst performance since April. Between the threat of a trade war, Federal employee mass layoffs, geopolitical unrest, and uncertainty with the direction of the new Administration, confusion ran amok. The Trump Bump got bopped!

March began with more negative announcements coming out of the White House that negatively impacted the markets. First it was announced that the Administration will further crack down on technology chips sold outside of the U.S., sending the Magnificent Seven into correction territory. Next came an announcement of across-the-board tariffs on Mexico, Canada, and China that would have negative impact on agriculture, the auto industry (steel), housing (lumber), and retail (clothing), just to name the most impactful. When President Trump provided details of his plans as it relates to the trade war, tariffs, and proposed tax cuts, anyone with knowledge of economics and finance came away with one word: Stagflation.

Stagflation is the combination of stagnant corporate earnings growth and price inflation. Stagnant growth and inflation separately are two of the most vicious culprits of the economy and market performance. Put them together at the same time and you release a two-headed monster. That is what is wreaking havoc on the economy and the markets. Tariffs will cause US companies to pay higher prices for foreign goods. These tariffs will hurt corporate earnings as they will not be able to pass on all the additional expense to consumers, thus hurting their profits (stagnant growth). The consumer will now be faced with higher prices (inflationary). The net result will have a negative impact on the economy and the markets. With that said, the markets continued to plunge with the NASDAQ entering correction territory (down greater than 10% from its high), with the S&P and DJIA approaching it. March was the worst monthly performance for the markets since 2022, driven by tariff uncertainty. Not a pretty picture.

 The Way Forward  

 As we have said many times over, markets often move to excess both on the upside and the downside. We are not there yet (on the downside). Given all the noise in the first quarter surrounding tariffs, debt ceiling, international strife, Govt layoffs, etc., one would think that the markets would be down even further. As we go to print, President is officially rolling out his Tariff strategy. To no one’s surprise, the markets are tanking. We believe one of two things will occur: The Administration will continue to push the tariff strategy until the markets breakdown and force the Administration to retreat, or the Administration, Canada, Mexico, China and others will come to realize that this battle is putting the global economy at risk and come to acceptable trade agreements between the countries. We think the ladder will occur. And until it does, we believe that the near-term environment will continue to be gloomy. Should the market weaken enough to create opportunities, we will take advantage of it. Should this conundrum threaten the portfolio, we will move to protect. Stay tuned.

 As stewards of your capital, it is our objective to preserve your wealth while delivering returns that, over the long term, will enable you to meet and exceed your financial goals. That has not and will not change. As always, feel free to contact us to discuss your specific portfolio(s) and financial situation. We appreciate your vote of confidence and thank you for allowing us to serve you.

 Ivan Thornton 

Managing Partner, RIA 

_____________________________________________________________________________________________________

January 4th, 2025

“As we go to print, the Wall Street Journal is running a series on the optimism surrounding the U.S. economy that is sweeping markets higher. This and other bullish sentiments on display give us pause.

While we remain long-term bullish, we are cautious in the near term……we believe that this market needs time to digest the many headwinds that exist.”

-FMG Q3 Newsletter

Market Overview

2024 is in the book! The returns are as follows:  

DIJA +12.9

S&P 500 +23%

NASDAQ +28.6%

FMG CORE. +35%

Certainly no one could be disappointed with this performance. Looks great, but as we all know, it didn’t come easy. Though the bull market was still intact at the beginning of the fourth quarter, our concerns of difficult “headwinds” we referenced above reared its ugly head.  At that time, the Middle East was just starting to take a dangerous turn and U.S. dockworkers voted to strike. Oil prices shot up – the largest component of the inflation calculation - (because of the crisis in the Middle East) and interest rates jumped higher. Add to that, the official launch of the most divisive presidential campaign in modern time. Undoubtedly, these occurrences sent the market into a tailspin as we suggested would be the case. Fortunately, the headwinds we warned about were short lived and didn’t have the negative impact as expected. The markets quickly calmed down. Otherwise, the month of October is a blur in memory compared to what was to follow in November and December. The markets seesawed back and forth during the month with the nation focused on the political environment both in D. C. and abroad.

We all held our collective breath heading into the month of November as we approached what had been built up as the most consequential presidential election in recent history. Volatility runs amok! Market direction changed with the daily results of different election polls. Some of the volatility could be blamed on institutional “gamblers” however, some of the volatility can be explained by investors desire to get ahead of, or out of the way of the Trump Trade. Labeled the Trump Trade because positive or negative polling for candidate Trump would move selective industries accordingly. Positive polling sent Energy, Crypto and military stocks higher - industries that candidate Trump favors.  Conversely, it sent Green Energy, Healthcare and China related stocks lower as these are industries that would feel his rath. Though volatility at times is unnerving, we utilize these market swings to take advantage of the opportunities it creates.

Better market entry points are created when volatility sends stock valuations lower.  Better market exit points are created when the market proves too exuberant.

The election came and went, and our great country remains intact. Post-election results provided the largest one-day gain since 2022. Excitement in the markets was led by the notion that under the new Administration 1) expiring tax cuts would be extended, 2) additional tax cuts would be forthcoming and, 3) a more business friendly regulatory environment would soon be ushered in. To add fuel to the market momentum, two days after the election the Federal Reserve cut interest rates another one quarter of one percent. Given these two events, the markets responded by posting the best week of the year leading to historical highs. The post-election rally lasted exactly one week led by a 40% jump in TSLA. Theory has it that TSLSA stands to benefit from its close ties to the incoming Administration, particularly as it relates to government tax breaks and contracting. Given President elect Trump’s support of Crypto currency, that market rose 35% in the days following the election. The Energy industry was also a leading benefactor of President-elect Trump’s position on fossil fuels. As he always says, “drill baby, drill!” Conversely, the Alternative Energy sector took a hit, as too did the Pharmaceutical industry given incoming HHS Administrator Robert F. Kennedy’s well known anti-vaccine stance. As well, anything related foreign trade, particularly China, came under pressure as President elect Trump has been very clear about his strategy of implementing tariffs on foreign competitors to level the playing field. In addition to the Trump-favored industries robust performance post-election, the market experienced what is known as a “relief rally”. At the end of the day, investors want clarity of direction in the economy and the markets regardless of who is in the White House. The relief rally continued throughout the month of November, thus turning in the best monthly performance of the year. I would be remiss if I didn’t acknowledge that Bitcoin had its best performance in its short history, passing the $100,000 point. When asked how and why, there have been several answers. “Animal Spirits”, “Risk-On Frenzy”, “FOMO” (Fear of Missing Out)? We think it was Big MO….as in momentum. President-elect Trump has surrounded himself with “Bitcoin bros” whom clearly have his ear. Add to that, his choice for SEC Chairman is a known Bitcoin sympathizer who promises to unsaddle the industry of onerous regulations. Will the positive momentum last? Time will tell. For us, while we do not discourage those who wish to participate in Bitcoin, we maintain that, at the moment, it is a speculative play that needs time to play out before we are willing to commit to it. We’re in good company as Warren Buffet’s opinion on Bitcoin is a bit harsher.

The market entered the month of December continuing its winning ways. In the first week, the market’s momentum pushed the DJIA and S&P 500 to record highs. Adding to the momentum was strong economic data indicating that inflation continued to cool. This indicator provided the best evidence yet that the Fed’s monetary policy was paying off. The “Trump Trade” and strong economic data made the market red hot…until it wasn’t. As we have said many times, markets tend to move in excess on the upside and the downside. This time was no different. The party ended when the Federal Reserve threw cold water on the market with a hawkish statement warning of the possible need to pause its rate cuts. While the Fed did cut rates an additional twenty-five basis points during its December meeting, it suggested that the economy was growing and that inflation may raise its ugly head once again. As such, the Fed indicated that Wall Street’s projected rate cuts in 2025 may not come to pass. Party over! With that news, the DJIA tanked over 1000 points following a 12-day losing streak, its longest in 50 years. The S&P 500 and red-hot NASDAQ followed suit. Wall Street’s expectations that the Fed would continue to cut rates throughout 2025 was a major reason why the markets had been on a tear. With the Fed suggesting otherwise, the markets tumbled, turning in the worst monthly performance since April.  Reason for concern? Not hardly. We saw it as a speed bump to slow things down a bit and a reminder of the market’s reality. The markets continued to trade down for the remainder of the month. Hopes of a Santa Clause Rally (markets tend to trade higher in the last five days of the year) were shut down.

The Way Forward  

Clearly, Wall Street is excited about Trump 2.0. In a recent report, Goldman Sachs suggests that the S&P 500 will eclipse 6,500 (currently at 5,800) a more that 12% move from here. Morgan Stanley agrees. We certainly hope they are right. We believe that valuation expansion and earnings growth will be the theme for 2025. Also, sector rotation will be prominent as investors look for better valuation in industries and companies that have underperformed the markets but are nonetheless high quality. Having said that, we believe that the markets will continue to drive higher, albeit, at a less torrid pace. While we do not see any of our current positions negatively impacted by the new Administration’s posture, we certainly see companies and industries that we will add to portfolios to take advantage of the new Administration’s priorities. Conversely, we will avoid industries that we believe may be adversely impacted by the new Administration. Like every investment advisor in the industry, we are consumed with researching how best to position your portfolios under the new Administration. Our job is to constantly be on the hunt for emerging trends, undervalued sectors, special situations and individual companies to take advantage of in an effort to make you money. Spoiler Alert:  This bullish sentiment going into the new year can very well be undermined by the increasing international discord. While it is difficult to factor in the potential risks - Middle East, China, Russia, Iran, etc., - we are certainly mindful of the risks associated with each. Stay tuned.

 As stewards of your capital, it is our objective to preserve your wealth while delivering returns that, over the long term, will enable you to meet and exceed your financial goals. That has not and will not change. As always, feel free to contact us to discuss your specific portfolio(s) and financial situations. We appreciate your vote of confidence and thank you for allowing us to serve you.

 Ivan Thornton 

Managing Partner, RIA 

______________________________________________________________________________________________________

October 3rd, 2024

“…the broader market is poised to play catch-up. While we continue to be constructively bullish, let us be clear, challenges remain. We are still faced with geopolitical unrest, domestic discord, and a forthcoming contentious presidential election.”

-FMG Q2 Newsletter

Market Overview

Q3 is in the books. The YTD returns are as follows:

DJIA 12.32%

S&P 500 20.30%

NASDAQ 21.17%

FMG CORE 28.50%

The Sector Rotation we had been calling for all year went into full effect in July. “Sector Rotation is the lifeblood of bull markets,” as the saying goes. Why is that, you ask? Market expansion elongates the bull run. Most bull markets start in a concentrated sector (Big Tech for this one) and then branch out to other areas such as Small Cap, Value, etc. While the Tech trade has been the driver of performance year-to-date making up some two-thirds of the market’s performance, the broader market is now playing catch-up as you can see in the performance return of the S&P 500 (broad market) vs. the NASDAQ (technology). Having said that, with the sector rotation that went into effect in the second week of July, Small Cap stocks drew interest from investors and finally snapped their malaise and had their best week since 1995. Small Cap stocks benefit most from a decrease in interest rates. With news from the Federal Reserve indicating that inflation was coming down, this bodes well for the potential of a cut in interest rates. Small Cap stocks are heavily dependent on borrowing so a cut in rates would decrease their cost of capital, and thus improve their earnings trajectory. Value stocks also got in on the market rotation. Value stocks have underperformed growth stocks since 2020. They have been overdue for a comeback. Given that many investors took some profit from the Big Tech run-up – present company included – they/we rolled profits over to Small Cap and Value stocks as both areas had yet to join the upward movement and had been primed to play catch-up. Your collective portfolios certainly benefited from this strategic move. The Big Tech correction picked up further steam when both Alphabet (Google) and Tesla reported weaker than expected earnings. This sent not only these two stocks down, but also impacted the entire Big Tech sector resulting in the worst trading day of the year. While Alphabet has been and continues to be a core position in our model portfolio, after assessing the earnings report, we made no changes in the position. We also maintain a small position in Tesla.

In both cases, we frankly believe that these two companies will continue to be at the forefront of the technological evolution for many years to come.

If July was recognized as the month of the Great Rotation, August would be considered the Month of the Great Correction…. albeit short lived. In the first week of August, the markets displayed one of the most breathtaking displays of volatility in a very long time. The Federal Jobs Report indicated a sharp decline in the labor force sending unemployment to its highest level in three years, giving way to fears of a recession. Criticism was quickly directed at the Federal Reserve for not lowering rates sooner. The real culprit of this vicious downdraft however was the “Japan Carry Trade.” On the first Monday of August, the Japan market traded down like that of “Black Monday.” Sound familiar? Yes, THAT Monday when the market crashed in 1987. Headlines sent tremors across the globe. Traders and investors waited with great anticipation wondering if the U.S. market would follow suit. When the U.S. markets opened, they traded down significantly, however, not as bad as the Japanese market. What was the trigger? The Japanese Government had raised rates the night before to a level not seen since 2008. This triggered what is known as an unwinding, whereby Japanese institutional investors were forced to liquidate positions in large quantities, affecting everything in their portfolios, which included many U.S. companies. This negativity carried over to the U.S. markets, thus creating the negative Carry Trade. The good news is that this had little to do with our markets, thus the damage was limited. Nonetheless, the volatility was considerable. U.S. markets quickly experienced the correction that we had been calling for. The Tech Sector pulled back greater than 10% from their highs, and the overall market traded down some 6% during the rout. Once it became clear that this occurrence was Japan specific, the markets proved its resilience once again - thanks to the Buy the Dip strategy - and came roaring back. Over the following two weeks, we received a slew of positive indicators that the Federal Reserve’s efforts to bring down inflation were bearing fruit. The CPI showed that inflation had fallen below 3% for the first time since 2021. This provided the clearest evidence yet that the Fed could move to cut interest rates. The markets took this cue and began to rally once again, recouping all the losses from earlier in the month, thus delivering its fourth straight month of gains.

As we have experienced more than ever this year, volatility once again went into full effect. September began with another selloff, which consolidated the gains from the late-August rally. Adding to the pullback were questions regarding a weakening economy and the stall of the AI industry momentum. The first week of September was the worst weekly performance of the year. Alas, after all th starts and stops, and the anticipation and disappointments, in the second week of September, the Federal Reserve finally cut interest rates by one half of one percent. In response, an abundant amount of cash that investors had moved to money market accounts when rates were high came off the sidelines. With rates now coming down, this cash had gone looking for higher returns in other opportunities, mainly the equity markets. The equity markets took off to the upside and hit fresh highs to cap a strong September and third quarter.

The Way Forward

As we go to print, the Wall Street Journal is running a series on the “optimism surrounding the U.S. economy that is sweeping markets higher.” Hmm, being the contrarians that we are, this and other bullish sentiments on display give us pause. We do not want to “throw water on the fire” or “rain on the parade,” but we just think that this fire has burned hot for some time now and that parade participants may want to grab an umbrella. While we remain long-term bullish, we are cautious in the near-term. The Federal Reserve has done its job in bringing down inflation and interest rates. The markets have responded accordingly, resulting in higher market valuations. At the moment, we believe, based on the various valuation tools we deploy, that this market is fully valued. We have said many times, markets tend to move in excess both on the downside and the upside. We believe that this market has moved to the upside at a rate that suggests a market correction is coming. We continue to remain positive on the economy, which will be reflected in market performance, but we believe that this market needs time to digest the many headwinds that exist. These challenges include, but are not limited to domestic political discord, a contentious presidential election and growing international conflict with the Middle East beginning to look like a powder keg. Add to that, Labor unrest with thousands of U.S. dock workers preparing to go on strike. This strike would surely choke off the flow of import and export goods that will cost the economy a projected 3 to 5 billion dollars a day. The supply chain for consumer goods and manufacturing parts would be shut down, thus sending inflation soaring. While your collective portfolios have benefitted from market performance, we would not hesitate to exercise downside protection if warranted. In the meantime, we will look to add to positions should a pullback create investment opportunities. We will be patient. Our job is to constantly be on the hunt for emerging trends, undervalued sectors, special situations and individual companies to take advantage of to make you money. As stewards of your capital, it is our objective to preserve your wealth while delivering returns that, over the long term, will enable you to meet and exceed your financial goals. That has not and will not change. As always, feel free to contact us to discuss your specific portfolio(s) and financial situations. We appreciate your vote of confidence and thank you for allowing us to serve you.

Ivan Thornton

Managing Partner, RIA

______________________________________________________________________________________________________

July 3rd, 2024

“We believe that the markets are overdue for a technical correction as stocks appear to be overvalued in the near term. Barring anything unforeseen, we do not believe a technical correction would be severe nor long. We expect continued volatility resulting in a choppy upward trend and the indexes will continue to rise.” 

 FMG Q1 Newsletter

 We got that right! The first half of the year is in the books:

 DJIA                          +3.6%            

S&P 500                     +14.5%                                  

NASDAQ                   +18%

 We mentioned in last quarter’s Newsletter that we anticipated a near-term technical correction given that the markets had had a significant run without any meaningful pullback to consolidate those gains. Near term technical corrections are quite the norm in market uptrends. The markets had not experienced a meaningful correction in over six months during which time stocks moved higher. Investors had pushed the markets higher given FOMO – Fear of Missing Out. Well, be careful what you ask for! We got that technical pullback in early April. The pullback reminded investors that markets do not go straight up and that pullbacks are painful! In addition to the market having been overvalued and technically extended, inflation remained stubbornly high. The Federal Reserve suggested that any thoughts of a projected rate cut would not come anytime soon. Clearly this reality disappointed Wall Street and the “talking heads” who had built up the anticipation of rate cuts. We warned against this anticipation as economic data clearly suggests that we are not out of the woods yet. Anyways, on top of the continued inflationary pressure came a spike in oil prices which began to show up at the pump. This put even greater pressure on inflation, thus pushing the markets lower. Add to this, the geopolitical calamity occurring in the Middle East sent markets down even further. All said, April proved to be the worst month of the year.

 We received a bit of a reprieve in May when in the first week of the month, economic data reports indicated that the economy was showing signs of cooling, thus mitigating inflationary pressure. Wall Street once again began to talk up the potential of an interest rate cut. This chatter sent the markets higher eight trading days in a row, recuperating all of April’s losses. Companies began reporting their strongest quarterly earnings since the beginning of the pandemic. As well, several companies announced some of the largest buybacks in history which added more fuel to the rebound. By the third week of the month, DJIA made history by trading over 40,000 for the first time ever. Many Wall Street analysts - encouraged by the market’s performance - began to raise their targets on where each Index will trade by year’s end. Again, FOMO kicked in, and the markets traded higher.

The upward momentum in the markets continued in June led by no other than……Big Tech. For starters, NVIDIA reported blow out earnings and announced a stock split. There were several announcements by many of the Tech companies of new, innovative products and services that would further enhance the benefits of AI. Non-Tech specific companies reported strong earnings, thus broadening the market’s rally. Finally, in the second week of June, the Fed’s CPI data was reported and once again indicated that the inflation rate may in fact be falling and the economy slowing. This once again gave the “talking heads” ammunition to talk up the probability of an interest rate cut, thus sending markets to all-time highs.

 The Market Rally Broadens

 We suggested at the start of the year that the environment is ripe for other companies and industries to follow the lead of Big Tech and generate favorable returns for investors. We stated that we expected a more normal market performance as the expansion of breadth and depth of the market rally took hold. This call is finally coming to fruition. While we continue to enjoy the AI fueled rally in Tech, there are other high-quality companies and industries that deserve attention from investors. Our job is to constantly be on the hunt for emerging trends and undervalued sectors and individual companies to take advantage of. Moreover, given the movement in Big Tech, portfolio diversification becomes important to avoid concentration. We will not be hesitant to reduce exposure in winners if warranted. Other areas of the market are starting to join the party not at the expense of the Tech Sector, but in addition to. Your portfolios are strategically positioned to benefit from both.

 The Way Forward  

 “Wall Street is Getting More and More Bullish On Stocks.”

“Investors Can’t Afford to Miss the AI Rally.”

Why Wall Street is Seeing Potential for Even Greater Upside.”

Hmm, given our often contrarian perspective, headlines like these from the popular press give us pause. Not to suggest that they are wrong, as we agree with the premise. However, this type of “crowd think” often does not end well. This is a rare instance where we hope we will be wrong. There are many reasons for the bullish sentiment, however. For starters, there is an abundant amount of cash coming off the sidelines that investors had moved to money market accounts when rates were high, known as the “Cash Trap.” With rates projected to come down later this year, this cash will be looking for higher returns in the form of other opportunities, mainly the equity markets. While the Tech trade, led by all things AI, has been the driver of performance year-to-date, making up two thirds of the market’s performance, again, the broader market is poised to play catch up. While we continue to be constructively bullish, let us be clear, challenges remain. We are still faced with geopolitical unrest, domestic discord, and a forthcoming contentious presidential election. Having said that, there remains empirical evidence to support bullish sentiment including continued economic growth, low unemployment, moderating inflation, and robust corporate earnings. While we will continue to enjoy the run in the markets, we will also keep a close eye on the potential for “irrational exuberance” and will thus govern our decisions accordingly.

As stewards of your capital, it is our objective to preserve your wealth while delivering returns that, over the long term, will enable you to meet and exceed your financial goals. That has not and will not change. As always, feel free to contact us to discuss your specific portfolio(s) and financial situations. We appreciate your vote of confidence, we thank you for allowing us to serve you, and wish you many happy returns! 

Ivan Thornton 

Managing Partner, RIA 

______________________________________________________________________________________________________

April 5th, 2024

“While we believe that there will be a bit of a pullback at the beginning of the year to consolidate the gains of Q4, we also believe the markets are well positioned to continue their resumption on the upside. Having said that, we remain constructively bullish on the economy and the markets in both the near and intermediate term.”

FMG Q4 Newsletter

The “Magnificent Seven” Continues to be…Magnificent!

Q1 is in the books and the beat goes on. The beat of an increasing market that is:

DJIA               +5.62%          

S&P 500         +10% 

NASDAQ       +9.11%

We mentioned in last quarter’s Newsletter that we anticipated a pullback at the start of the year that would consolidate the 2023 year-end rally. This is typical, as strong market movements – up or down – are often followed by a reversal in direction. The good news is that the pullback did not last long at all. After a brief pause, the markets continued their upward trend from mid-January through the end of February. You cannot talk about the market’s performance without discussing Artificial Intelligence (AI). You cannot discuss AI without mentioning “The Magnificent Seven” and, you cannot discuss the Magnificent Seven without highlighting the major mover of the group, NVDIA. In 2023, the Magnificent Seven – NVDIA, APPL, Microsoft, Google, Amazon, META, and TESLA – accounted for some 70% of the market’s performance. Many market historians compare AI to the founding of the Internet back in the late 90’s, early 2000’s. As clients of ours, you have benefited from this movement and your portfolios are positioned to continue to do so. While we believe this outperformance will continue into the foreseeable future, we do expect other sectors of the market to join the party.

The markets hit turbulence again in the second week of February when the Consumer Price Index (CPI) - considered a barometer of inflation - came in higher than anticipated. Two more data points followed indicating that the Federal Reserve had more work to do on the inflationary front. These reports were not necessarily indicative of the resumption of interest rate hikes, but rather that the Federal Reserve certainly would not consider cutting rates after three months of pausing the increases as had been projected by market prognosticators. We have strongly voiced our disagreement with the “talking heads” on Wall Street clamoring for a rate cut. Not only were they calling for a rate cut, but also predicted that many cuts would occur this year. Nothing more than self-serving optimism, as a cut in rates would push markets higher. Wishful thinking! A cut in rates at this moment simply defies logic. The Federal Reserve’s job is to manage the economy, not the stock market! The Fed will tend to cut rates in a weak economy and/or high unemployment to spur economic growth. Yes, rates are still high, but with unemployment at a forty-year low and the economy growing, calls for an interest rate cut are premature. The three data points that came out suggested that a cut in rates was not necessary at this time. With that said, the markets pulled back. Fortunately, the pullback was short-lived as the market’s momentum showed strength even without a rate cut. The markets resumed their upward trend resulting in February turning in the best performance of the S&P 500 and NASDAQ in 10 years. Then came March.

The markets stumbled out the gate in the first week of March.  As mentioned, strong market movements up or down are often followed by a reverse of course. Such was the case in the first couple of weeks of March. The market performance record that was set in February was followed by a consolidating pullback in the beginning of March. This good old-fashioned pullback was further exasperated as a result of market prognosticators continuing to voice complaints about the Federal Reserve’s inaction on the rate front. As mentioned, these “talking heads” had been projecting rate cuts from the Federal Reserve. Given the continued economic data indicating that the Federal Reserve had no reason to cut rates in the immediate, and chose not to cut rates, the markets pulled back once again. To add to the market weakness, four of the market “darlings” - TESLA, Apple, Google, and META – hit turbulence, with each reporting company-specific challenges that took their share prices down. While none of the problems appear to be long term damaging, these events reminded investors that stocks do not go straight up. There will be some bumps along the way and that periodic profit taking is prudent. The profit taking spread to other AI related companies, specifically NVIDIA, and thus, the overall market. Just a good old market pullback. Being the contrarians that we are, we took advantage of the opportunities that were created, and bought the dip. That move paid off when in the third week of March, Fed Chairman Powell intimated that that there will be two to three rate cuts later this year. The markets celebrated that announcement by turning in the best weekly performance of the year, and with the S&P 500 turning in the best Q1 performance in 5 years. The beat goes on!

 Note: We would be remiss were we not to acknowledge the performance of Cryptocurrency. While we continue to be lukewarm at best on the sector, we will acknowledge that the asset class has rallied from its low and hit new highs…without our participation.

The Market Rally Broadens

In mid-March, the Wall Street Journal ran a headline we had long waited for: “It Isn’t Just Big Tech Propelling Gains in the Stock Market Anymore.” We suggested last quarter that the environment is ripe for other companies and industries to play catch up and generate favorable returns for investors like Big Tech. We stated that we expected a more normal market performance as the expansion of breadth and depth of the market rally took hold. Though we were a bit early on that call, we are starting to see this come to fruition. There are high quality companies and industries that deserve attention from investors. Investors are asking, who/what’s next? As profit taking occurs in the Tech Sector, investors are finally starting to look at other companies and industries to play catch up. As well, given the movement in Big Tech, portfolio diversification becomes important to avoid concentration. Having said that, we are finally starting to see Sector Rotation and momentum expansion in other areas. Other areas of the market are starting to join the party not at the expense of the Tech Sector, but in addition to. Your portfolios are strategically positioned to benefit from both.

 The Way Forward  

 While we remain constructively bullish, let us be clear, challenges remain. We are still faced with geopolitical unrest, domestic discord, a contentious presidential campaign, and a border crisis just to speak to the obvious. Moreover, after five straight months of gains in the markets without any meaningful pullback, we believe that the markets are overdue for a technical correction as stocks appear to be overvalued in the near time. Barring anything unforeseen, we do not believe a technical correction would be severe nor long. Having said that, there remains empirical evidence to support bullish sentiment including continued economic growth, low unemployment, moderating inflation, and robust corporate earnings. Given these two competing scenarios, we expect continued volatility resulting in a choppy upward trend. We will continue to buy the dips when warranted, take profit when prudent, and always look for innovative ideas and emerging trends to take advantage of. Stay tuned.

As stewards of your capital, it is FMG’s objective to preserve your wealth while delivering returns that, over the long term, will enable you to attain your financial goals. That has not and will not change.

 As always, feel free to contact us to discuss your specific portfolio(s) and financial situations. We appreciate your vote of confidence, we thank you for allowing us to serve you, and wish you many happy returns! 

 Ivan Thornton 

 Managing Partner, RIA 

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