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Financial Fitness & Life Planning

September Market Update

My outlook has now reverted to cautious as the stock market returned to new highs and interest rates spiked.  Throughout the correction that occupied much of this year, my fund benefited from increased exposure.  Now that the market climbed out of it, I have reduced exposure back to around my pre-correction levels.  Despite robust earnings and relatively low interest rates, I am concerned about high valuations, more aggressive Fed tightening, rising long-term rates, a looming slowdown in earnings growth, deteriorating corporate balance sheets, reduced quality of earnings, the US-China trade dispute, narrow leadership, and dispersion in financial markets.  Indeed, not only emerging markets but also 80 of the 500 stocks in the S&P are in bear markets.      

This month I continued to boost Kraft Heinz, trimmed Apple, and exited H&R Block, Broadcom, Genuine Parts and United Technologies.  Kraft Heinz is suffering from less loyalty among consumers and a weakened position in the balance of power between retailers and brands.  These dynamics are stifling revenue and earnings growth, but it is still a strong business.  With the stock having lost a third of its value this year, I consider the shares to be cheap and attractive.  I trimmed Apple and sold United Technologies because I consider both stocks now to be fully valued. I sold H&R Block because I reconsidered the quality of the business, Broadcom because I decided that in combination with Intel it was too much exposure to the volatile semiconductor industry, and Genuine Parts because of not enough differentiation from the overall market in terms of valuation.

~~Michael Berlin can be contacted at mberlin@mhbpartners.com and at (631) 629-4928 .

The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.
 

 

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