Category: Uncategorized

by Franklin J. Parker, CFA

Stagflation is the word of the month… Growth has slowed (GDP was revised down to 1.6% from 2.0%), and inflation is again pushing above 3%. Consumers are responding by beginning to cut back. This week, investors get a closer look at whether employment is holding or beginning to slip. So far, the “low hire/low fire” dynamic has kept unemployment steady, but the “no hire/low fire” dynamic is what I am worried about.

In short, everyone is watching the employment figures later this week.

That said, corporate earnings just had a blow-out quarter, logging 28% growth over this time last year. This is, unfortunately, part of the set-up for the stagflation scenario. The key indicator to see here is consumer confidence. Typically, revenues are led by consumer confidence form 2 – 3 quarters ago. With the massive drop we’ve seen recently, we should be on the lookout for consumers cutting back in the coming 6 to 9 months.

Overall, I am suggesting that investors remain invested, but with clear risk controls going forward. Understanding which risks will derail your goals is the key, then take steps to mitigate those risks. We should be on the lookout, though, for a storm sometime near the end of the year.

Chart of the Week

This week’s chart demonstrates the classic stagflationary set up: GDP growth is slowing down (blue bars) while inflation pressures are increasing (orange line). Even factoring out energy costs, inflationary pressures are still building (dotted line). This is a narrative we need to watch closely.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

So inflation is back.

Inflation posted hotter than expected in both the consumer and producer price indices. Hope of the Fed cutting rates any time soon is pretty much dead. In fact, investors now expect higher rates going forward, not lower.

Higher inflation expectations have pushed bond yields higher, and many have broken through important technical barriers. Friday’s close on the 30-year US Treasury yield is the highest closing level since June 2007 — this may indicate that higher yields are to come as markets reset expectations completely.

On Wednesday, we see earnings from Nvidia and Walmart, both important to keep the market upside narrative alive. Higher bond yields puts downward pressure on stocks, and the rally may be tested this week. Though, with earnings in the 27%+ range, I expect downswings will have a floor under them.

Portfolio Implications

Fixed Income. Long US treasuries, high-quality corproate bonds, and even tax-free municipals are starting to look attractive at these levels, though we may suggest waiting to enter until the market finds a new equilibrium.

Equities. While earnings are good, there are indications that this market is fragile to shocks. Nvidia missing earnings or the Fed minutes revealing a more hawkish FOMC may subject the market to a short-term downdraft.

Alternatives. The case for alternatives, like non-traded oil and gas interests is benefiting from higher energy prices. However, sustained bond yields above 5% would compress equity multiples and put downward pressure on private equity and venture capital. Private credit and real estate will also suffer as refinance rates are considerably worse.

Chart of the Week

This week’s chart comes to us from the Federal Reserve’s FRED database, and it shows the 30-year US Treasury yield from 2007 to today. The 5% yield mark is significant for two reasons. First, it marks the first time in 20-years that we have seen this level, so it is a significant shift in the regime we’ve had from then to now. Second, the period from the 1980s to 2020 was a period of almost-entirely declining interest rates. 1% in 2020 may represent the very bottom of that multi-generational trend. With today’s yields, we may be in a new trend of generally-upward interest rates. Or, at least, a sideways market for yields. Either way, it represents a firm break with the past.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Happy Star Wars Day!

Corporate earnings are, quite frankly, fantastic. It appears that earnings grew around 27% over this time last year, which is double what was expected from the analysts that I follow! This has given markets a boost, both psychologically and quantitatively.

The concerns in private credit — a serious risk few are talking about — has not gotten better. Bloomberg reported that borrowers who made payments with borrowed money has increased to 11% in the last quarter. Some Federal Reserve governors have commented on the risks lurking in private credit, but they have allayed fears that this could lead to a 2008-style contagion.

Overall, I am growing optimistic. Corporate earnings are good, and guidance has been positive. Frustratingly, however, my recession signals are still flashing red. My overall advice is to be invested, but to understand what downsides might be unrecoverable for your plan. We may be in a scenario where the recession trigger sneaks up on us and everything happens all at once. Risk controls, in this environment, make a lot of sense.

Chart of the Week

This week’s chart comes to us from Fathom Consulting and shows the valuation of various stock markets around the world. As is pretty clear from the chart, the US market is the most expensive of the developed economies. This may be a fear trade, but history suggests that opportunities may be hiding in less expensive places, like the European Union.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

After some brief volatility, investors have largely shrugged off the Iran war. I am concerned about the consequences for oil & gas, though the US will be considerably less affected than the European Union, China, and India, who rely heavily on energy from the region.

Earnings are the big story for investors right now. Companies are growing earnings by about 15% over this time last year, and those strong earnings are supporting higher prices. As I have said before, so long as companies continue to grow earnings, we should see markets move higher.

I am concerned about the breakdown of private credit, however. It has largely moved from the headlines, but there is trouble brewing in these off-market funds, and that trouble has the hallmarks of contagion. In addition, corporate layoffs have begun to reach alarming levels. There have been over 100,000 announced layoffs in technology alone!

Overall, I see storm clouds forming, but there is probably still some time before the rain drops start to fall. That said, we need to keep a close eye on the risks hiding beneath the market’s all-time highs, especially in private credit.

Chart of the Week

This week’s “chart” comes to us courtesy of Reuters, and it demonstrates the strategic challenge of the conflict around Iran. Given their long coastline, Iran can exert considerable control over the the Strait of Hormuz, through which some 20% of the world’s oil flows.

There are pipelines to move oil to a seperate port, but that capacity is very limited and it will take many years to build new pipelines. Until then, energy flows will be largely determined by the whim of the Iranian regime.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

We finally got labor data for January last week and it was considerably better than expected. It appears the US economy added 172,000 jobs, which was about 100,000 more than economists expected, and the unemployment rate dropped to 4.3%. Earnings season also continues, with companies growing earnings by about 13% over this time last year. Price increases continue to slow down, with inflation coming in at 2.5%. Not far from the Fed’s 2% target.

From an investment perspective, these are all very good signs. It may be that the US economy accomplished the first “soft landing” in history (a slowdown of inflation without a recession).

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The confusion comes from other data that paints a very different picture. We are also seeing the most amount of announced layoffs since the Great Financial Crisis (2009). Retail sales stalled in December, and companies have begun to announce price increases for 2026. Markets are also quite volatile, with the S&P 500 seemingly unable to cross above the 7000 mark.

What does this all mean for investors? We have two takeaways. First, the era of a buy-the-index strategy outperforming may be at an end. We are finding that picking quality names out of the index is working better than a simple “buy everything” approach.

Second, investors with goals to achieve should be cognizant of the losses that could derail their goals. Understanding that number, and developing a strategy to mitigate the risks of it happening, makes a lot of sense in an ambiguous market like this.

Chart of the Week

This week, I want to share the one chart that gives me some confidence in this volatile market. Ultimately, stock prices follow earnings growth. In fact, stock prices anticipate changes in earnings by about 3 to 6 months, as this week’s chart shows. The blue line is the 1-year change in stock price, and the brown bars are the 1-year change in expected earnings. As you can clearly see, the blue line tends to move in advance of the brown bars by about three to six months.

The comfort this chart gives is that, at least for now, the earnings growth is expected to be quite strong. Therefore, I expect there to be a floor to these selloffs. At least for now.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Everyone is asking what happened last week.

Stocks dropped last week around 4%, with gold, silver, and bitcoin all falling dramatically. Bitcoin is now down almost 50% from its October high. While it was a wild week, we’ve all struggled to point to a cause. A new feature launch from Anthropic, the makers of Claude AI, was pointed to as the culprit in stocks, but that still doesn’t explain the sudden risk-off mood across all asset classes.

For stocks, earnings are coming in better than expected, and it appears companies will increase earnings by about 13% over this time last year. Again, this is very good earnings growth. So long as companies continue growing earnings, I expect there is a floor to any selloff.

For precious metals, however, I am growing cautious. As I mentioned in last week’s note, they have significantly outgrown any reasonable valuations, and I think this is a good point for investors to take profits, where they can.

I have, for over a year now, been cautioning investors against the weakness brewing in the underlying economy. We got a fresh round of news on that front, unfortunately. Announced layoffs have grown to the highest number since 2009, standing at 108,000 announced in January. Job openings also fell much more than expected last month. While this may be AI-related, there are numerous forces at work on the labor market making it difficult to tease apart.

Overall, I am still cautious. I am tired of saying this, but it would appear that, so long as companies continue to make money, markets will go up. However, layoffs and unemployment are tell-tale signs of a recession, and it does appear that risk in markets has only built over the last year.

Chart of the Week

This week’s chart comes courtesy of Reuters and it illustrates the growing concern with AI investment, generally. Nvidia makes chips for Open AI and Oracle. However, OpenAI also received a $100 billion investment from Nvidia — effectively, Nvidia is buying their own chips. Similarly, Oracle is receiving a $300 billion of orders for infrastructure from OpenAI, but to fill that order requires chips from Nvidia.

It is a very circular loop and the question keeps coming up: are there enough paying customers to keep this cycle going?

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Earnings are top-of-mind for investors, and AI is the talk of the town. Companies that have relied on AI narratives to push their stock price over the past year are now seeing investors asking “when do we get paid”? For companies that have delivered good results from their AI spend, we are seeing rewards in stock price. For companies still failing to deliver, however, the punishments have been heavy.

Overall, analysts expect earnings to grow about 11% over this time last year, which are strong.

A concerning development over the past weeks has been the increasing number of announced layoffs. Amazon plans to lay off 16,000 workers, UPS plans to lay off some 30,000 workers(!), and Dow plans to lay off around 4500 workers, to name just a few. It is important to put these figures into perspective, however. The post-Covid years have regularly seen announcements as high as 100,000 per month. And, yet, no recession behind those announcements. A development to watch, but not one to worry about just yet.

Besides, the employment has been deteriorating for some time now, yet that has not been affecting consumer spending much, if at all. Until those unemployed workers stop spending, I expect corporate earnings will continue higher.

Overall, I maintain my view that the economic backdrop is very weak. That said, earnings continue to improve. Risks are to the downside, but if the S&P 500 breaks above 7000 there are probably higher prices after that. In short: investors should be cautious, but we cannot afford to sit on the sidelines forever.

Chart of the Week

Gold and silver have been in the news with a huge upward surge in price, followed by Friday’s swift downward crash. The big question — is this the end of the run, or just the beginning?

I am a collector of arcane financial theories, and there is an one that I somewhat subscribe to known as the log-periodic power law. I’ll spare you all the gory details, but it says, in short, that “normal” price growth should be approximately exponential. However, when growth becomes more than exponential, it is dangerous. This is the fancy version of “pigs get fed, hogs get slaughtered.”

We don’t even need a fancy model to see this. On a chart, exponential growth looks like a smooth upward curve. Or, if we look at the logarithm of prices, that curve becomes a tilted upward line. Hyper-exponential growth, however, still looks like a sharp curve even when we take the logarithm of the price. We can clearly see this behavior in silver over the past year.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Buckle up, its Fed week!

Investors are expecting a rate cut at this meeting, followed by a series of cuts into next year — with an expectation for rates to end up around 3.25% by end of summer 2026. Some data last week may make this a harder decision than investors would like, and markets will be watching Powell’s press conference very closely. If Powell expresses any doubt about the future path of cuts, that will likely push markets around.

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Other than the Federal Reserve meeting, there is not much data on tap. Investors are wrapping up their years and getting their portfolios in position for taxes and quarter-end window dressing. As I have repeatedly discussed, my view is that a recession is brewing out there, though markets seem not to care. I am urging investors to evaluate their portfolio holdings in light of that likelihood.

Chart of the Week

There has been lots of talk about the “white collar recession” brewing as companies introduce AI and have need of fewer human workers. October’s spike in job cut announcements was taken as a sign that this has finally come to pass. However, in context (with COVID layoffs, for example), October’s jump was negligible. It was however, part of a larger trend in 2025 — companies have increased layoffs, and this may be an indication of normal economic slowing ahead of a recession.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Ambiguity is still the main theme for markets today.

Earnings season is over, with companies growing earnings by about 13% over this time last year. Those are very solid earnings, yet we’ve seen markets trade mostly sideways. This is largely due to the underlying economic data, which has been getting progressively worse. Consumer confidence, business indexes, inflation, and unemployment have all sapped investor confidence.

This week we see important data on personal expenditures, consumer debt, and data on the health of the services sector. Early indications of black Friday retail sales were positive, but whether that momentum is maintained into the end of the year remains to be seen.

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The Federal Reserve meeting is approaching with the FOMC somewhat divided over whether to continue the path of interest rate cuts into the end of the year. Chair Powell has indicated that the data they see is murky with the risks of inflation still lingering, yet several committee members have indicated they want to continue cutting. Markets see a 90%+ chance that the Fed cuts at their December meeting — a change to that expectation could push markets around quite strongly.

Overall, I am still cautious. The underlying economic data has worsened despite strong corporate earnings. That said, a rally into the end of the year would be a normal seasonal occurance, so we do have that tailwind for markets. 2026, however, may get interesting very quickly.

Chart of the Week

One challenge over the past month and a half has been the delay in data releases (or their outright cancellation). Corporate earnings, therefore, have taken on a more important role than normal. Looking more closely at corporate earnings we see that, despite strong earnings growth, the US stock market is more expensive than about 90% of its history. That should give investors pause about future returns as high valuations tend to foretell lower future returns over 3-, 5-, and 10-year periods.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

With earnings season mostly done and the government shutdown putting a lid on new data releases, there isn’t too much to talk about.

Earnings have been mostly good for US companies, and more evenly distributed than in past quarters. That said, the AI bubble appears to be deflating a bit. The sky-high valuations given to AI companies have come down, with Nvidia and Amazon’s valuations coming back to earth and Tesla’s valuation replacing them in space (see Chart of the Week).

The big problem right now is that investors are mostly flying blind. We are seeing job cuts on the rise, with over 153,000 job cuts announced in October alone — bringing the year-to-date total to over 1 million (last year at this time we had 653,000 job cuts). Without figures for job creation, we are struggling to understand if these job-seekers are now joining the ranks of unemployed or if they are finding new jobs. Recall, job creation has been very slow this year, as well, so my estimate is that these folks are now unemployed. But, again, without official employment reports it is hard to know.

On that front, the US Senate has cleared a procedural hurdle to re-open and fund the government. There is still some wrangling to come, but investors are celebrating the milestone.

Overall, there are positives and negatives weighing on the economy. I see the balance of risks to the downside, but it is difficult to know which trigger might break investor confidence and push markets over a cliff. The deteriorating labor market is a serious concern and if it has gotten considerably worse while investors sat in the dark, I suspect markets will react negatively. I am still recommending caution to our investors, but your goals will determine which risks are appropriate for you.

Chart of the Week

Today’s chart shows the valuation of the “magnificent seven” stocks (NVDA, AAPL, META, GOOGL, MSFT, TSLA, and AMZN) as measured by each company’s price-to-earnings ratio. The more extreme valuations have come back to earth, but Nvidia and Amazon’s 2023 valuations have been replaced by Tesla’s of almost $300 for every $1 of profit!

The challenge with valuations, however, is that they are not a very good timing indicator. Sometimes extreme valuations can still lead to above-average returns. NVDA is a good example. Despite watching their valuation fall from 250x to 54x (an 80% contraction!), the price of their stock still moved higher, tripling over the same period! Valuations are a tricky business.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.