How Influential is a CEO

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Past performance is no guarantee of future results.  Trend signals are proprietary research of Fortunatus Investments, LLC, a Registered Investment Advisor with the Securities and Exchange Commission (SEC). Reference to registration does not imply any particular level of qualification or skill.  Prior to June 2014, Fortunatus Investments was a wholly owned subsidiary of Executive Wealth Management, LLC and they continue to share common ownership and control. Data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation.  One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.

Quote of the Week

Federal Reserve Builds Lego Town to Explain Inflation

Headline of a Bloomberg Economics article from Catarina Saraiva. The Federal Reserve Bank of Cleveland had posted three animated videos featuring Lego figures explaining basic inflationary concepts on their website last week. Unfortunately, someone may have deemed the content too juvenile for the U.S. central banking system as the videos are no longer available, and the Cleveland Fed has deleted the tweet that promoted the videos.

Market News

Stocks bounced back strong last week after stumbling a bit following the release of the Federal Reserve’s slightly more aggressive interest rate projections (called a “dot plot”) in mid-June. Microsoft made a few a headlines during the week as it became the second company to cross the $2 trillion threshold for market capitalization after it gave the public a sneak peek of the Windows 11 operating system.

A company’s market capitalization (or market cap) is the total dollar market value of its publicly traded shares of stock. As of 6/25/2021, four of the five largest companies in the world by market cap were in the technology sector, along with Saudi Arabia’s state-owned oil company, Saudi Aramco (see the chart directly below). Moreover, Microsoft, Amazon, and Google parent company Alphabet, are the three biggest players in the cloud computing industry. By providing computing services – such as databases and artificial intelligence algorithms –  over the Internet (or “cloud”) to clients for a fee, these companies have access to revenue streams with seemingly unlimited growth potential.

And it is somewhat ironic that Microsoft passed its market cap milestone after promoting its new version of Windows because many market insiders believe that it is when current CEO Satya Nadella turned Microsoft’s primary focus away from its once omnipresent operating system and towards cloud computing that the software giant regained its market mojo.  Since Nadella became CEO on 2/14/2014, Microsoft has outgained the Nasdaq 100, a large-cap tech benchmark, in terms of total return 747% to 315% (see the chart below).

Such outperformance would have been unthinkable under Nadella’s predecessor, Steve Ballmer.  The CEO of Microsoft for over fourteen years, Ballmer became emblematic of a technology company that had seemingly lost its edge.  During his tenure from 2000 to 2014, Microsoft would devote considerable research to emerging technologies like smartphones only to kill these promising projects when it felt that they would inhibit the company’s cash cows  – Microsoft Windows and Office. Ballmer was the first business manager hired by Bill Gates back in 1980, and he believed that Microsoft’s focus should always be on its operating system and ancillary products. So just like how IBM’s inability to see the advantage in designing the software in its original personal computer allowed an upstart Microsoft to gain its footing in the early 1980s, other  companies took advantage of Microsoft’s myopia. As a result, Microsoft’s stock underperformed the Nasdaq 100 during Ballmer’s tenure -11% to 5%.

So the saga of Microsoft from Steve Ballmer to Satya Nadella shows that even an old dog (well, at least old for a technology company) can learn a few new tricks when it has a fresh perspective and a willingness to change.

Model Update

On Wednesday, June 23rd, both the Fortunatus Equity Dividend and the Fortunatus Emerging Growth Companies models made changes to their underlying holdings. The Emerging Growth Companies model added a new position in the healthcare information services industry, and the Equity Dividend model added a new drug manufacturer.

There were no other trades in the Fortunatus models during the week ending on June 26th, 2021.  The major equity market sectors remain in a long-term favorable trend, and the Fortunatus Asset Allocation models are near their maximum allowable equity exposure with domestic stocks favored over international shares.

EWM News

The domestic stock market, along with all Executive Wealth Management offices, will be closed next Monday, July 5th, in observance of Independence Day. We hope all of our clients have a fun-filled Fourth of July weekend.

Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Investment Advisor Representatives of Executive Wealth Management, LLC offer Investment Advice and Financial Planning Services to customers located within the United States. Brokerage products and services offered through Private Client Services Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities.  EWM does not offer tax or legal advice. Please do not transmit orders or instructions regarding your accounts by email.  For your protection, EWM does not accept nor act on such instructions. Please speak directly with your representative if you need to give instructions related to your account. If there have been any changes to your personal or financial situation, please contact your Private Wealth Advisor. 

Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold.

1 Week = closing price on June 4, 2021 to closing price on June 11, 2021
1 Month = closing price on May 11, 2021 to closing price on June 11, 2021
3 Month = closing price on March 11, 2021 to closing price on June 11, 2021

 YTD = closing price on December 31, 2020 to closing price on June 11, 2021All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. All information and opinions as well as any prices indicated are current only as of the date of this report, and are subject to change without notice. Material provided is for information purposes only and should not be used or construed as an offer to sell, or solicitation of an offer to buy nor recommend any security. Any commentaries, articles of other opinions herein are intended to be general in nature and for current interest. Some of the material may be supplied by companies not affiliated with EWM and is not guaranteed for accuracy, timeliness, completeness or usefulness and EWM is not liable or responsible for any content advertising products or services.

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