Blue Chip Partners Quarterly Edge: Q2 2022

Market Outlook

With all that the financial markets have grappled with this year, it’s hard to believe that we are only one quarter into 2022. Alas, Spring is here, and with it comes greater daylight, more sunshine, and generally cheerier moods. Surely the markets will follow suit, right? That remains to be seen. There are more reasons for pause today than this time last year, but that doesn’t mean it’s all doom and gloom. For the upcoming quarter, we outline the elements that we view as most likely to influence the economic direction of travel, preferred positioning amid rising rates and lingering inflation, and how Blue Chip would look to handle potential forward-looking scenarios.

1. Continued Crossroads

Some information on the path forward has been revealed, but the waters have been muddied significantly. The knock-on effects from the conflict in Ukraine equate to further disruption in an already disrupted balance between supply and demand. The commodity-heavy nature of the Russian and Ukrainian economies could prolong the semiconductor shortage, which is leading domestic and international automobile manufacturers to cut production forecasts for 2022. Increasingly tough comparisons vs. 2021 indicate that inflation should not persist at the 7.9% seen in February, but the developments seen year-to-date have introduced additional variables.

2. Navigation Amid Uncertain Seas

Warning signs are flashing, but we have yet to see anything definitively troublesome as it pertains to economic growth and corporate profitability. In fixed income, investors will continue to struggle to obtain meaningful yield without increasing exposure to interest rate and default risk. In this environment, layering in high-quality floating rate securities can provide benefits amid rising rates. On the equity side, the economic backdrop calls for a focus on profitable firms that generate significant free cash flow today, not 20 years from now.

3. Blue Chip Radar

We don’t have a crystal ball, but we do have a plan of attack. As new information becomes available, we will be watching closely to interpret what factors into the big picture and what is just noise. Regardless of the path forward, the Investment Committee at Blue Chip Partners holds a defined view with regards to how to position client portfolios.

Blue Chip Partners Quarterly Edge Report - April 2022

Expressions of opinion are as of 31 March 2022 and are subject to change without notice. Any information provided is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation to buy, hold, or sell any security. There are limitations associated with the use of any method of securities analysis. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Every investor's situation is unique, and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance does not guarantee future results. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Dividends are not guaranteed and must be approved by the company Board of Directors. Indices are included for informational purposes only; investors cannot invest directly in any index.

(1) Indexes are shown for illustrative purposes only. It is not possible to invest directly in an index. Senior Loans are represented by the S&P/LSTA Leveraged Loan Index. High-Yield Bonds are represented by the Bloomberg U.S. Corporate High Yield Bond Index. Preferred Securities are represented by the ICE BofA Core Plus Fixed Rate Preferred Securities Index. Investment Grade Corporates are represented by the Bloomberg U.S. Corporate Bond Index. Municipal Bonds are represented by the Bloomberg Municipal Bond Index. Mortgage Backed Securities are represented by the Bloomberg U.S. Mortgage Backed Securities Index. Core Bonds are represented by the Bloomberg U.S. Aggregate Bond Index. Government Bonds are represented by the Bloomberg U.S. Treasury Index. TIPS are represented by the Bloomberg U.S. Treasury TIPS 0-5 Year Index.

(2) Indexes are shown for illustrative purposes only. It is not possible to invest directly in an index. Railroads are represented by the S&P 500 Railroads Sub Industry GICS Level 4 Index. Tobacco is represented by the S&P 500 Tobacco Industry GICS Level 3 Index. Software is represented by the S&P 500 Software Industry GICS Level 3 Index. Semiconductors & Semiconductor Equipment are represented by the S&P 500 Semiconductors & Semiconductor Equipment Industry GICS Level 3 Index. Pharmaceuticals are represented by the S&P 500 Pharmaceuticals Industry GICS Level 3 Index. Automobiles are represented by the S&P 500 Automobiles Industry GICS Level 3 Index. Utilities are represented by the S&P 500 Utilities Sector GICS Level 1 Index. Specialty Retail is represented by the S&P 500 Specialty Retail Industry GICS Level 3 Index. Food Products are represented by the S&P 500 Food Products Industry GICS Level 3 Index. Airlines are represented by the S&P 500 Airlines Industry GICS Level 3 Index. Hotels, Resorts & Cruise Lines are represented by the S&P 500 Hotels, Resorts & Cruise Lines Sub Industry GICS Level 4 Index.

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