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Even though cyclical stocks’ excess return has been somewhat modest in 2021, they have done well overall since the start of this bull market. Moreover, while the economy is poised to slow next year, real-GDP growth should post another healthy gain near 4% to 4.5%—helping to keep cyclical stocks in a leadership position. Thus, owning a wide variety of cyclical stocks again during 2022 probably makes sense. Still, there are a couple of reasons investors should consider tilting those cyclical bets toward consumer cyclicals rather than industrial cyclicals.

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Why do we own bonds? I understand the nostalgia. After all, bonds have been part of portfolios ever since, well, there have been portfolios. They have always represented the consummate balancing asset; bonds make those risky stocks tolerable and allow a restful night’s sleep. But, just like Linus and his blankie, it’s tough to let go of such a comforting friend.

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The U.S. labor market holds the key to the duration of the economic expansion and its corollary bull market. In October, the U.S. unemployment rate declined to 4.6%—which is lower than 75% of the time since 1948. Although there’s still room for further improvement, historically, when the unemployment rate fell below 4%, economic conditions often became difficult.

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Just cleaning out the “thought box” today…

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In this prolonged era of growth-stock dominance, cyclical stocks seem antiquated and passé. Why own something that is highly volatile, subject to the vagaries of an unpredictable economy, and offers no true sustainable long-term growth story? Particularly when there are FANGS available that are painting the future of society and the economy. FANG-style stocks are also much steadier, significantly less connected with economic cyclicality, and offer sexy future growth. When I put it that way, I too am having a hard time being convinced to buy a cyclical stock?

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Investors have two primary questions regarding the current inflation problem: 1) Is the recent inflation surge just temporary or will it prove sustainable, and 2) Why are bond yields ignoring higher inflation? Unfortunately, we do not have a definitive answer for either question, but a look at U.S. history is informative.

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One Main Street sentiment indicator implies that, contrary to FOMO, today’s stock-market strength is more likely driven by “FOBI”—the Fear Of Being In.

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The problems associated with Supply relative to Demand have been well documented. Burgeoning demand has simply overwhelmed supply chains, causing the prices of nearly everything to soar.

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The earnings season kicked off last week and, so far, it appears that corporate America had another solid performance in the third quarter. Since inflation is proving to be more persistent than expected, anxieties surrounding profit-margin pressures are escalating.

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The stock market’s past performance has long been recognized as a good indicator of future performance. A notable performance attribute that shows excellent prowess in predicting future stock-market returns is the degree of total-return divergence among the market’s underlying constituents. 

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Coming of age in the 1970s, I understand the current, widespread fears of runaway inflation. Although it’s unlikely, could the last couple of years’ abuse and overuse of monetary and fiscal policies bring back a 1970s’ Inflationary Disco-era?

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One of the more interesting (if not unique) aspects of the current economic expansion is its outsized need to “grow into itself.” In its infancy, every recovery displays this attribute.

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