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We have just emerged from September, “the most treacherous month of the year”, as Jim Cramer recently put it. Historically September is our least likely month to make money in the stock market, and 2021 was no exception…the S&P 500 Index was down 4.76% for the month. We are now entering the season with the best statistical market performance, the last three months of the year, so at least seasonality is in our favor for a time.


Strong corporate earnings have continued to power the market higher, and consensus earnings estimates continue to point higher. Current estimates from the Raymond James Equity Strategy team point to a 9.4% increase in earnings in 2022, and an additional 9.1% earnings increase in 2023. As earnings are normally the key driver to the market returns, the next couple of years look promising for investors. In addition, according to a recent Reuters report, America is short more than 5 million homes, which bodes well for the housing industry, one of our most important economic drivers.

The experts we respect continue to expect inflation to be only a minor problem over the next few years. Yes, there are still many pundits fanning the flames of the inflation monster, but most of them fall into the camps of the bond bulls who need higher rates to benefit their businesses or the academics who have a consistently terrible record at predicting inflation. But supply chain issues, which are causing many of the current price increases, normally take care of themselves, and that is what we expect will happen within a few months.

We do, however, have our eye on energy prices and the recent hikes in gasoline and natural gas prices. Several of our episodes of inflation and market corrections in the US have been preceded by a spike energy prices, and energy price increases could certainly cause some inflation headlines this winter and create market turbulence. But again, we don’t expect that to impact corporate earning over the long term.


So, what do we have to worry about? What will continue to provide the wall of worry that all bull markets must have to continue higher? (You’re thinking, is he deaf?!)

The media is alive with the hysteria around the negotiations in Washington over the infrastructure bill, Biden’s social infrastructure bill and the debt ceiling. Actually, those issues don’t seem to be bothering the markets as most of us have just about given up on anything positive coming out of our nation’s capital anyway. Typically, budget negotiations in Washington only have a very short-term impact on market action.


Our attention is currently focused on what is happening halfway around the world in China. It appears that China’s property bubble has far exceeded the bubble we experienced in 2008 which caused our most severe recession and market crash since the great depression.

The 1000-point intra-day drop in the Dow Jones Industrial Average on Monday, September 20 was triggered by the news of a potential collapse of China’s giant property developer, China Evergrande. The potential impact of the situation was explained the next day by an article posted by Michael Pettis, one of the brightest minds in the world and an expert on the Chinese economy. He is a currently a professor at Peking University’s Guanghua School of Management specializing in Chinese financial markets after retiring from a career on Wall Street.

As I stated earlier, China’s property market is inflated far beyond the levels we saw in the US in 2008. As we know, when investors decide to exit an overpriced market, the resulting plunge is usually not pretty. This appears to be beginning in China and could create some volatility in financial markets.

The US financial system will not be impacted greatly as US investors seem to have limited exposure to Chinese debt but markets never like uncertainty, so there could be some volatility in our markets as well. This will probably come about as investors evaluate the impact to the earnings of the holdings in their portfolios.

Many companies such as Apple, Caterpillar, Ford, Tesla, and even Coke and Proctor and Gamble have aggressively expanded their business in China and now have significant revenue from Chinese sales. Obviously, these companies and many others will experience some impact on their earnings.

At AGAM, we immediately pulled a report from our research sources to evaluate the exposure our holdings have to China and are working to limit that exposure. Fortunately, we discovered that many of our favorites such as the utilities, the home improvement retailers, the auto parts retailers, the regional banks and the healthcare stocks, have no foreign revenue at all. Our bias against investing outside the dollar appears to be helping again…another reason to invest in the good ole USA!


In our opinion, unless you are a short-term trader, which we are not, the only appropriate action to take from this kind of situation is to limit your exposure to the more cyclical companies doing business in China. China has taken some actions to attempt to mitigate the damage from this company, so the timing of any resulting market correction will be impossible to predict. We believe any dips in the market will be short-lived.

We believe a balanced, well-diversified portfolio is the best vehicle to deliver a solid retirement income. Stick with your plan, and call for any encouragement you may need to do that. We enjoy hearing from you.


Dave Crouch Kim Blackburn Kay O’Connell

Registered Principal Branch Operations Manager Financial Advisor

Financial Advisor

Buffett Quote:

“Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”

Warren Buffett

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.


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