Investment Management

First Half 2025 Market Outlook

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Jessica: Hello. Welcome.

?Speaker: Hi.

Jessica: The right light spotlight. I don't remember exactly where we were, but I know it was a long time ago that Troy looked at me and he said, "Jessica, I think one day we're going to have a billion-dollar firm." I said, "Way to dream big, Troy." I remember exactly where we were when we first pulled up to Houston and stayed two months at the Extended Stay Galleria, a very luxurious place, might I add, when I saw Troy peering out the window.

Troy said, "Man, if we just had a crystal ball to know what it would look like as we start out on this venture 10 years from now, 15 years from now, 20 years from now." We were craving certainty. As I'm sure many of you can relate to, whether you're retired or thinking about retiring, we want certainty. We want to know that our money is going to be there to support us when we need it, that our lifestyle is not going to change because we stopped working. Unfortunately, we don't have certainty with the market. If that's what you were hoping to hear tonight, not going to happen.

However, much like the stock market, there is no crystal ball. What's kept us grounded as we began our business and carried it through, and continue to grow, is the vision first and foremost for Oak Harvest Financial Group, the team of professionals that we've put together to build a level of expertise that specializes in retirement on your behalf, providing world-class financial planning to our esteemed clients, and following the golden rule, which is do unto others as you expect to be done unto you. In other words, doing what is right.

That's what sustained Oak Harvest Financial Group and provided us a level of grounding and certainty that we were in the right place, doing the right thing, even on the really hard days. Thank you to everyone who has contributed to that. First and foremost, to my team at Oak Harvest, to Troy, my business partner, and to each of you in the seats today and all of the--

The last market summer, we had 800 people on the live stream. I can't see it right now, but whoever is tuned in live, thank you for being a part of this event. Fifteen years later, after standing in the lobby of that extended stay and having that conversation about wanting a crystal ball, I am, in one word, humbled to tell you that we are on the precipice of crossing over that billion-dollar threshold. With that, comes a grand responsibility.

When we look at that billion-dollar threshold, all the dollars and all of the cents, there's one thing that's true. It's not just money. Money is energy. Money is a means to freedom, a means to convenience, to care for loved ones, to maintain your lifestyle. It's freedom. It's a sum of your hard work. It's a sum of personal sacrifice. Any other business owners out here, you know what I'm talking about when I say that, but also if you've had a career for 20, 30, 40 years, it's a lot of personal sacrifice.

When we look on the horizon that we're about to cross $1 billion, it's a grand responsibility. There are three ways that we got to $1 billion, in my opinion, and continue to strive for excellence. The first is the acquisition of new assets, people putting faith in the ability of Oak Harvest Financial Group not only to manage their assets, but to also bring world-class financial planning to the table.

Performance is another way to get to $1 billion. It's to do a really good job in portfolios, which leads into retention, which I think is the most important thing. Our retention is something that we are very proud of at Oak Harvest Financial Group. It's not enough to just acquire new assets. We want to value the clients that put their faith in us and retain them for a long time. I'm happy to say that we've done a wonderful job in doing that. Thank you for staying with us.

[applause]

Oh, thank you. Why are we here tonight? In a world where you have to download an app or scan a QR code to do just about anything, where there's AI and robo-advisors, we want to bring it back to our roots, back to the days where Troy and I-- We don't want to bring it quite this far back, where Troy and I did every single appointment. We have a team for that now.

We never want to lose the boutique feel of knowing who's managing your money. That's why we're here tonight, to be able to, again, in a world that's tech-advanced, be able to look into the eyes of the investments team, which is a part of your plan. I'm going to come back to that, and know who's responsible for managing your money. That is something that is very unique to Oak Harvest, that we have an in-house investments team.

Some of our advisors were really drawn to that, to work for Oak Harvest. I remember Janice, I think I said this at the last market summit, but I'll never forget, she was like, "Oh, Chris Perras and Charles Scavone, I know that they work here." I was like, "Yes, do you want to go meet them?" She was like, "What do you mean?" She was so surprised that their offices that they were there.

She hadn't heard about them through her own career at Invesco. We like the down-home, in-person feel. That's how we started. That's hopefully how we continue to grow. I just appreciate that y'all are here in person to be able to talk to the team that is managing your money. That's important to us as well. Because money is personal, I think money is intimate.

We're not talking about money with our neighbors intimately, about the details, sometimes even with our spouse. It can be an uncomfortable conversation to have. The last thing that you want is to think of, there's robo-advisors managing your money and algorithms and all of that. No, there's actual people here at Oak Harvest.

You'll get to sit and ask the questions to those people and hear about our outlook for 2025, which includes volatility, geopolitical uncertainties, policies changing in the US, and technological advancements. With that, let's all take a deep breath, because all of that sounds really scary. I know there's a lot of noise out there. I wanted to remind you that tonight we'll focus on investments.

That that's part of a plan. It is the uncertain part of the plan. The certainty in your ability to retire and stay retired comfortably will be in the level of communication that you have with your advisor and your involvement with your plan, knowing that you have income coming to you that's not solely dependent on market performance, knowing that you're being tax-efficient with your investments, knowing how to pull from the different accounts that you have, otherwise known as a distribution strategy, knowing that you're maximizing Social Security and any other supplemental income aligned with taxes. That's planning, and knowing that there's a plan for generations to come.

Tonight, I want to share with you one last thing, just personal for my life. My business, Troy's business, Troy and I met working for my dad 15 years ago. My dad recently passed away on January 8th. Some of you now this if you've attended some of my seminars, that my dad and I had a very tumultuous relationship, including 12 years of no contact.

My dad was diagnosed with bile duct cancer two and a half years ago. I, for the first time in my life, realized just the importance of what it is that we do, and maybe a little bit of a different context, I'm in no way retired, but I had to take a big time out. I wanted to have the relationship with my dad, and there was some healing, and time was of the essence when he got that diagnosis.

If it wasn't for the support of my team, my reliable income, and God, I don't know that I would have been afforded that time. I got a taste of what it must feel like to be retired and completely leave it in somebody else's hands. Again, I want to thank you for your faith and trust in Oak Harvest Financial Group and my team for helping to have that support.

[applause]

Thank you. Lastly, lastly, tonight's purpose is to filter out some of the noise that we hear on social media, the media in general, our neighbor next door, the mailman, and connect you back to your money and to our esteemed investment team. Tonight, we will hear from Troy Sharpe, Charles Scavone, and Chris Perras. Welcome, guys. Come on in. Thank you.

[applause]

Troy Sharpe: Tonight we're really going to explore 2025, what we expect from a market outlook standpoint. We're going to get into magnitude. I think that's going to be a big word for tonight because we do have a positive outlook for the markets for 2025. There are a few reasons, primarily the new administration, creating an environment that has less friction.

Lower taxes, less business regulation, all of these things should contribute to more pro-growth policies, or they are more pro-growth policies, but also more growth expectation in corporate profits, and of course that flows through to your individual portfolio. What really is the burning question in our minds and what we're going to dive into tonight is the magnitude.

Does that mean the markets could be up 15%, 20%, 25%, 30%, 40% over the next 12 months? Or is it 5%, 7%, 8%, 10%? When I say magnitude, that's really what I'm talking about. We want to dive into some of the factors that could impact the magnitude of the market growth. Then we're also going to dive into the magnitude of the impact of the policies themselves from the first Trump administration to where we are now.

Meaning the first Trump administration caught everyone by surprise. Not everyone knew what to expect from a policy standpoint. There were the campaign promises, but actually following through on them, getting Congress to enact the desired legislation, that was a little bit of an unknown. Now the markets know what to expect. The question is, how much are the markets already anticipating these policies and some of those benefits have been baked into the existing higher levels of the stock market?

Once the policies are actually passed, how much of an impact will that have on stock prices in the overall market? Magnitude's a key word tonight because, again, we do have a positive outlook over the next 12 months. The big question is the magnitude of that movement, what could impact it, and also some of the individual decisions that can be made from sectors, which companies, for example, may benefit, which ones may not benefit.

Then a little bit about how we decide which companies we want to invest in those more favorable sectors. We're going to, I'm sure they told you already, but we're going to ask you to keep your questions down until we get to the end. We are going to have a private Q&A session for just clients in the room here. I may take a few as I go along on the YouTube channel here if we get some good questions.

At the end of tonight, we're going to shut the cameras off and we're going to do just a private session for you guys where you get to ask any questions that you want, talk face-to-face with the investment managers here, any planning questions, myself, I'm open to answer. I would like to get into a little bit of tax planning tonight if we have the time for it because there are some really good opportunities from a tax planning standpoint.

I'd love to keep you guys here until 11:00 or 12:00 at night, but I know that's not reasonable. There's a lot I can get into. With that, I want to first welcome Chris and Charles to the stage. Guys, give them a round of applause.

[applause]

Chris, ranges of possible outcomes. Where are we at right now currently on the S&P 500?

Chris Perras: We're just short of 6,100. Call it 6,050 on the S&P 500.

Troy: 6,050. When we talk about the market in general terms, we're talking about the S&P 500. 500 companies, you have the NASDAQ, which 2,000 companies roughly, a lot of information technology and technology, and then of course you have the Dow, which is 30 companies, mega large cap, huge companies. When we talk about the market, we talk about the S&P 500 because that's just generally accepted within the industry.

The S&P 500 price level around 6,050 right now. When we look at a range of outcomes following this theme of magnitude of potential movement, what are some of the ranges? Let's just start there and then we'll get into some of the catalyst that maybe could happen to help get to some of those different levels.

Chris: Thanks, Troy. I'm just going to take a couple seconds. Thank you for all for showing up. I think this is the fifth year we've done it. I normally have a catchy slogan for the year. A couple years ago, it was the old normal. That was back at the end of 2022. Last year was soft landing when everyone was saying we're going to have a recession or more last year.

This year, all I could think of was soft landing, not so softly. A soft landing is just a term they use in the markets and in the economy to talk about the economy growing at a slower pace. There's not euphoria out there. People aren't just going out and spending money frivolously, but the economy is growing. Inflation can be coming down. It can be relatively high, 3%, but coming down. It's okay for companies.

It's not Goldilocks, but it's good enough. We do have a playbook. We had Trump 1.0, 2017 on for four years. It was very unexpected back then. 2017, Charles and I managing money, historically low volatility. People I think forget. They think Donald Trump, lots of volatility. 2017 was very low volatility the entire year, almost a straight line.

We are not expecting that same outcome this year because we know his policies are beyond just, "I want to lower taxes," which is essentially what he focused on back then. 2025, I did a video in the last month because you always ask of scenarios. You can get 7,000 on the S&P 500 if Trump 2.0 played out exactly like Trump 1.0. You can get 7,000 at the end of this year-

Troy: 7,000 [crosstalk]

Chris: -on the S&P 500.

Troy: For some quick math, that's 16%, 17%, 18% roughly from here in the index itself, the S&P 500.

Chris: Right. Our outlook last year, optimistically we could end the year around 5,800 and he gets inaugurated, or whoever is inaugurated, because we didn't know when we initially wrote this, 6,000. That's about where the market was when he got inaugurated at the end of January. Our base scenario is around 6660, which is not a great number.

It would basically be 10 times the market's low during the great financial crisis. We'd get there in a very choppy manner, because we do know his policies. He wants to lower taxes, he wants to reduce regulations, but he's got a lot of policies out there that they're going to try to get through in the first year, as opposed to in 2017. There was one. "I want to lower taxes."

He was negative on China, but he didn't really implement tariffs in 2017. That was in 2018. I can get 6660 at the end of the year, something like that, in a very choppy way. That would be a great year. That would be a great year. The downside, if something negative were to happen to the economy, some financial crisis, you would go essentially back to where we were at the end of 2022, which is 4,400.

That's a normal recession, down 25%, 30% is a normal recession, which we are not expecting given what the Fed is doing. There are no longer raising rates. There's decent employment, and the economy is moving along. Inflation is too high for the Fed, but slowly coming down.

Troy: When we talk about a range of outcomes, in the financial planning sense, we talk about guardrails. You look at your portfolios, you look at how much income you're taking out, you look at the tax plan that you have in place. Then we talk about the investments, and how they could impact your potential portfolio, and we look at these guardrails.

What is your willingness to take risk, versus what is the amount of risk you actually have inside your portfolio? A guardrail in your portfolio may be, with a 95% probability of expectation, maybe plus 25% to the upside, minus 15% to the downside. That's what we're laying out here. Maybe not within that 95% range, more of a more probable outcome.

Your typical recessions are going to be 25% to 30%, but that is unlikely to be spurred by anything that this administration does, from a policy standpoint. There's always the unknown. That's your expectation, possibly, on the downside. From the upside, quite reasonably, we can get to 66,000 to 7,000, which is in between 10% to, let's call it 18% upside, just simply looking at the map.

Of course, there are going to be several catalysts, potentially throughout the year, Charles, that could not only impact the magnitude of the move up, and surpass that potential range that we're tentatively setting here, but of course there's thousands of different things that could impact the direction of the markets. Before I ask you the first question, I'll allow you to add to what Chris said there as far as where we're at 2025 and moving forward.

Charles Scavone: First, my personal thanks to everyone here. It's nice for me as a relative newcomer to recognize a lot of the faces and offer my sincere appreciation for the amount of trust you folks place in us. It doesn't go unnoticed. We're very cognizant of that and what our responsibilities are.

First thing I thought of when you said that is that the only thing that we know with certainty is that there will be some level of uncertainty that occurs and variability that goes on. The second thing I thought of when combining what both of you guys said is, thinking about things in a probabilistic way. What's the probability of something happening?

How I frame things up is always in that manner. What is my risk versus what is my reward? What I would tell you from my perspective is that I can reach the same conclusions from a little bit of a different pathway. It would be to take a step back and say, "What does corporate profitability look like? What do corporate earnings look like? What are we hearing so far on earnings calls? What are the hurdles that companies need to achieve to get to what is expected to be about 15% earnings growth for calendar year 2025?"

Capital markets will be focused on these forward projections. Remember, capital markets are always forward-looking. In my simplistic viewpoint, if I can get 15% earnings growth, which is what is the expectation, and now I would assign a higher probability on the ability to get there, based upon the things that these guys have outlined, all things equal, I should expect about a 15% return on stocks, broadly.

Where does that get you? It gets you pretty close to 7,000. The framework from which we're operating now is a period in which it hasn't happened in a long time where you've got decent underlying economic growth, good employment, inflation coming down, Feds on your side, lowering rates, and now the uncertainty regarding what the fiscal policy would be as a result of the outcomes of the elections actually turn out to be very favorable.

Despite all of the challenges, we achieved pretty decent returns for the last couple of years, better than average. Don't lose sight of that. Now we're in a position where we believe as a result of what we've talked about so far and other things we'll talk about in a minute, at least we can see a fairly clear path towards earnings growth. Earnings growth drives stock prices over time. Everything is in place. Now it's just a matter of always taking an objective view, putting a process-driven approach in place that gives us the best opportunity to deliver.

Troy: Charles and Chris, to summarize what they're saying right there, they both look at it a little bit differently as far as the potential. It's good from the standpoint of having different voices looking at things in different ways. I wish some of you guys could be in the room whenever they get into a disagreement over something and hear them share their respective points of view and how strongly they feel about it.

Both of them, I think I can speak for you guys here, are in agreement that 10% to 15% is the base case. Without anything extraordinary or surprising happening, somewhere between 10% to 15% would be the expectation moving forward. It's more rhetorical, but before I toss it to you, I want to lay out the dynamic that we have going on, because really when I look at the room, we have two sides of the room. It came to me, really there are two main themes playing out this year.

One, we have the pro-business, pro-growth Trump policies. Of course Trump can be a wild card. Back in the first term, he would tweet things on a Friday afternoon, and I would hear Chris yell from the back of the office, "Why did he do that? Why did he say that?" With some four-letter words mixed in. You can see the market. Trump would tweet something, and the market would dip about 1% or 2%.

From a growth standpoint, taking everything out, and that's our jobs ultimately, is to look at what impacts corporate profitability, it's favorable. It's a favorable environment. Then the other side of the room in this example, the Federal Reserve, because the Federal Reserve is really what dictates markets in the world.

In the United States, the Federal Reserve of the United States, is the most powerful entity, even really more powerful than the president in many ways. We have this dichotomy, almost a tug of war, because the pro-business growth policies of President Trump has the Fed concerned that inflation may not subside, it may remain and possibly even grow, so they could be a lot slower to reduce interest rates, which does tend to create a drag on economic growth.

We have pro-growth over here, a lot of uncertainty regarding monetary policy and its impact on growth. That really is what we're going to witness play out throughout 2025, which could determine the direction of the market itself.

Charles: That's a great point, because the last thing that prior to this little AI scare that we'll probably end up addressing later, the previous period of uncertainty within the market was what was the Fed going to do based upon the outcome of the election? The pathway didn't change, but the timing of it changed, just for the reasons that you described.

Troy: Meaning the Federal Reserve is still saying they're going to lower rates. The pathway has not changed. The timing, the pace, the rate with which they are going to lower rates has changed, because now there is a more pro-growth administration in office, so now they're saying that they should maybe slow down. I think I saw the odds today, if you look at any of the odds for rates being cut, very unlikely before the June meeting. We most likely are going to have to wait until the June meeting to see if there's any type of rate cut.

Chris: Don't look at those odds. People have done studies on Fed funds futures, what the Fed is going to do. I look at the data. People who research that, there's no predictive capability in what those markets say the Fed is going to do, except for the week of the Fed meeting. That's it. The Fed will tell you that. They're like, "We don't know. We're going to watch the data." They're going to wait for the data to come in.

If you wait for the Fed, you're going to be late. You're going to be late buying stocks. You're going to be late selling stocks. The market moves before the Fed. If you remember, the market essentially bottomed in July of 2022 when the market was down 25%, 30%, and the Fed started raising rates because inflation was 9%. They started raising rates, and the market bottomed. They started cutting rates last summer, and the market was already at 5,500, something like that.

It's on TV a lot. A lot of economists talk about it nonstop. I've had all the classes. When it comes to managing money, it's a lot of noise. We look at it, and now we actually can actually have a tool to voice our investment philosophy based on if we think the market is too anxious about Fed cuts or whatever. We can shift this portfolio in a certain direction. Talking about stuff like Fed Funds Future is just like this.

Charles: If there's one thing to take away, it's just always remember that capital markets are very much forward looking. Financial journalists have a job, and that's to report what's going on right now. We're always focused on where we're headed. We're looking where the puck is headed, not where the puck is at today is the analogy we try and use. Financial reporters, they're journalists.

They're not investment managers. They don't get paid. They don't get fired for doing a bad job. They're just reporting what happened. We do a bad job, we get fired. That's the way it should be. You just have to keep in mind what those folks' responsibilities are, and to Chris's point, don't get too caught up into what's being reported in the financial press every day.

Troy: Right. Point being, though, that interest rates are unlikely to be cut anytime soon. We have these pro-growth policies on the fiscal side. We are unlikely to see any type of rate cut regardless of what the odds say, anytime over the next six months. We have this dichotomy playing out, and this is going to impact your portfolio. We have, when we look at the fiscal side, tax policy. I don't have to ask you if you want to pay less tax. Of course, you want to pay less tax because if you didn't, you probably wouldn't be a client here at Oak Harvest. Taxes are a large part of what we do from a planning standpoint. When we look at the theme of magnitude, one thing when we were preparing for tonight, we started discussing, well, in 2017, if you remember, the market went straight up. Literally every single day you know the actual data. Roughly--

Chris: The market dropped peak to trough in the first quarter. The max, I think, was three and a half percent. After the first quarter, the peak to trough, high to low, was 1.2 percent, which is untradeable. It's a straight line.

Troy: It's untradeable because everything is just going up. It didn't matter who you were, what you were. For the most part, everything made money in 2017. It's because in President Trump, 1.0, they focused on tax policy as the primary legislative agenda item. Here we're now in 2025, and again, Taxes is the primary legislative agenda item.

Previously, the corporate tax rate went from 35% to 21%. For every dollar a corporation made in revenue, theoretically here-- Yes, 35% was the tax rate. Now it's already 21%. If that was a pretty significant drop in taxes, meaning corporates made a lot more profitability or a lot more profits from the first tax cut. Here we are now in 2025, he's not going to get the tax cut from 21% in its current state to 6%.

The magnitude of the drop in corporate tax rates won't be the same as the magnitude was in the first term. The question really becomes, guys, even if he gets it from 21% to 18%, because you and I, we're retail taxes, right? We're personal income tax rates. It helps when we have more money in our pockets. The stock market doesn't go up because, is it Joanne, Joanne, you have more money in your bank account. You like it. I like it. Everyone likes it in this room, but it's not going to impact the market.

What can impact the market is corporations having a lot more money because that increases the math that determines stock prices. If the corporate tax rate goes from 21% to 18%, a much smaller move than the previous administration, do you think that's still going to have any positive impact overall on the markets, Chris?

Chris: Sure. I think it will, obviously. The word we started talking in using last year is friction. Taxes. If you're a taxpayer and you want to keep as much cash as possible, if you're a shareholder, you want the company to keep as much cash as possible so they can reinvest it or pay it to you as a dividend. The lower the tax rate that a company pays, the more cash there is for a shareholder or for the company to reinvest.

Getting reduced by 3, yes, it'd be helpful. However, Charles and I were looking at, I think Facebook actually reported yesterday. They're making tens of billions of dollars a quarter. It's like, Charles, their operating income doubled. I think it went from like $15 billion in a quarter to $28 billion in the quarter, and their taxes were the exact same year over year.

Troy: Percentage-wise?

Chris: Dollar-wise.

Charles: Dollar-wise.

Chris: They're only paying 12% already. Some of the bigger companies that drive a lot of the earnings of the S&P might already be below that 15%, 18% or whatever. It would be helpful. The market would like it because the companies could then reinvest in AI or capital investment to bring jobs back to the US, or pay you dividends.

Troy: Charles, before you answer the question, 2017, do you remember what the market did, S&P 500, roughly? Chris: It started from a lower base than we currently are. I don't off the top of my head. It was up over 20%.

Troy: I was thinking even maybe closer to 27%, 28%, 30%, somewhere in that range. We had a massive drop in the corporate tax rate. Of course, a lot of corporations do pay less than that corporate tax rate. After the deductions, after whatever they're doing on the expense side, whatever's left as far as the taxable income standpoint, it gets taxed at that corporate tax rate.

Point being here is it's unlikely, although there will be some positive impact, it is somewhat unlikely that we could expect the market to go straight up every single day 2017 in the first year of Trump 1.0, because the magnitude of this tax drop is not as significant as it was the first time around. On top of that, you have baked in the expectation already. The markets are pretty certain that this tax legislation will get passed. There is, to some extent, some baking in of higher corporate profits because of lower taxes already.

Charles: For no other reason than the fact that prior to the outcome of the election, there was uncertainty regarding tax rates going back up. There was the sun setting provision so the tax rate could have gone back up. Now you know that at least that probably won't happen. That then gives you a greater certainty, a probability of projected earnings actually being the actual outcome as opposed to some reversal of that.

Troy: You just gave me the softball to talk a little bit about tax planning here because the truth is we had, for most of you in the room, if not, probably 80%, 90%, we've been pretty aggressive on Roth conversions. We've been taking money out of that tax-infested retirement account and moving it over to the Roth IRA, really to take advantage, one, of the fact that you are likely to pay a lot less tax over time by doing so.

Also there was this sunset provision to where rates were going to be a lot higher once the Tax Cuts and Jobs Act that Trump originally passed expired, and the buckets were going to be a lot smaller. Now we're in the position to where this legislation is either going to be extended or possibly an entirely new piece of legislation come forth. We're starting to look at tax planning in a little bit of a different light. We still want to do the Roth conversions. We still want to move down that path. What's changed is our timeframe.

There isn't as much of an urgency now to take advantage of these much lower brackets and larger buckets. I was working with a client just the other day. We were going through some tax analysis scenarios. We looked at four different ones, taking income from different places. Do we take capital gains or Roth conversions, continue down the former plan or the previous plan or look at something new? What we decided to do was to delay the big Roth conversions.

This gentleman had about $60,000 of long-term capital gains inside his non-qualified account, non-IRA. Last year we did almost $250,000 of Roth conversions, so big conversions. With President Trump now being in office and the likelihood of the tax law being favorable for an extended period of time, we actually transitioned away from the Roth conversion strategy a little bit this year.

We still did a $60,000 conversion, but we took the $60,000 long-term capital gain inside the investment account, so $60,000 in gains. You invest, makes money, $60,000, zero taxes on that $60,000. Capital gains. Now, there was in other income sources, so this may apply to everyone a little bit differently. Under the current law, you can still have up to about $100,000 of taxable income and pay $0 in tax on your dividends and long-term capital gains. Your qualified dividends and long-term capital gains.

Point being here is over the past really six, seven, eight years, with a lot of you, we've been focused on the Roth conversions, getting these done because we knew there was a cliff coming, a sunset coming. Now we know that this is going to be extended. This can alter our strategy, I just want to make you aware that it is still a highly favorable environment to look at taking capital gains. You can have up to about $100,000 of gains and still pay zero taxes in this environment.

Now, if you have other sources of income, it can alter that number. This is why we would look at it from a personal standpoint. Main takeaway here is that we say we do the tax planning year-to-year. This is a really good example of how year-to-year the actual strategy can possibly change based on your individual circumstances. From an investment standpoint, things change as well.

If we start to talk about we're going to transition into which sectors may do well, which ones may struggle in this administration, because that's something that has taken place, that because of the election, there may be some portfolio adjustments.

Charles, I'm going to throw this one to you first. From a beneficial standpoint, which industries may benefit from a Trump administration versus a Biden administration? What are some of the things possibly that we are looking at changing or we have already changed inside the portfolio?

Charles: Good question. It brings up a lot of broader issues. Let me answer the question first. We know from previous experience now that a pro-business initiative means less regulation. The easiest thing to do and the most sensible thing to do is which industries were the most heavily regulated. Quickly comes to mind is financial services industry. You can then assume that there would be some relief in terms of the rules and regulations that apply that could be restrictive to the financial services industry. That's created a favorable tailwind for a lot of the banks, a lot of the banking industry. You've seen that reflected in the stock prices so far. Then you can also take that and combine it with a falling interest rate environment provides a very favorable backdrop for the financial services industry. For us, that would be an area where we would want to be over-weighted versus the S&P 500.

Troy: Let me just pause there. We're going to talk a little bit about active management versus passive management. When you look at the S&P 500, pretty standard. Do you know offhand, roughly, the percentage of financial services in the S&P 500?

Charles: Financial services is about 12% or 15%. It's very meaningful. It's a little bit overwhelmed by technology. The good thing about the fact-- We're very much growth investors, and the growth sectors of the economy are represented fairly proportionately in the S&P 500. Technology is number one. I'll mix technology and communications services back together and get you to, let's say, 40%. Then financial services, health care, and consumer discretionary are big, meaningful sectors. Then it drops off.

Troy: It's about 12% to 15% financial services?

Charles: 12% to 15%, yes.

Troy: I want to make this point and get back to the sectors and industries that could benefit. Let's say when you were working and you were in the accumulation phase and you put money in the 401(k), you bought an S&P index fund. If economic policies or fiscal policy was more favorable for financial services or not, 12% to 15% of every dollar you invested went into financial services. Sometimes, in some areas, it's more favorable to invest in the financial services industry, and other times it's less favorable.

Whenever you do index investing, and we own indexes inside the portfolio, it's an important concept here because I want you to understand because of what's transpiring in the world, how portfolio managers and the changes and adjustments that we're making on behalf of you guys. When you do the index investing, regardless of whether it's favorable or not, roughly 12% to 15% of your money would have went into financial services because that's the percentage that represents inside the S&P.

When we see a more favorable environment for financial services, instead of just being the standard 12% to 15% to benchmark against the S&P 500, depending on how favorable it is, we could be 18%, 20%, 22%, 23% more towards financial services, essentially tilting it to be able to benefit more if the hypothesis is correct.

Chris: Yes. Specifically when it comes to the financial service industry, when we talk about friction, I'm going to come back to that word. The friction in the financial service industry came since the great financial crisis in the form of the banks having to hold more capital on their balance sheet. As a depositor, you might say that's great, but as a shareholder, I don't know, I might want that company to buy back stock, which they've been restricted on a lot by current regulation, or pay higher dividends, which they've been restricted on, or make mergers and acquisitions, which they haven't been able to do.

As a shareholder, those things are active. Those things help increase shareholder value. First, having a lot of cash sitting on the balance sheet of a bank that isn't active and isn't earning a return. The depositor may feel better about that, but the shareholder wants activity in that cash.

Charles: That's a wonderful example. I want to come back to something that Troy was saying because I think it is absolutely critical. It's something that we do that's very different than a lot of other folks do. If you've been in any meeting with me, you will have heard this story before. Years ago, when interest rates were headed towards zero, there was very little variation in how stocks traded. They all traded the same. You could own a passive index fund, and it didn't really matter. You got a great return. You know what? That's great, and that was wonderful.

There's been a paradigm shift in what is going on now and what we believe will be going on in the next 10 or 12 years, which is what matters to all of us in this room. It is a simple fact. When you give money to an index fund, they say they're a low-cost, really easy way to get invested. Every dollar you give to that index fund, there is a mathematical formula that determines the allocation of each dollar that goes into each of the individual stocks within the S&P 500, regardless of the investment merit of that particular company.

That's not the view we take. We believe that as a result of the increase in interest rates, very much differentiated patterns of economic growth across different sectors, and different countries, it's created an opportunity where stock selection matters. That's what we spend our time and focus doing, such that we look at each individual name and build those portfolios one stock at a time based upon the investment merit of that position on any given day. Then after we've built these portfolios, we take a step back into Troy's point and say, our top-down view of the world, is that consistent with what we've built from the bottoms up?

If it's not, if something's changed, we change it, we tilt it. Based upon what we've described now, what's happened, and what's going on, we'll tilt it towards higher financial services. Even within financial services, we'll tilt the type of financial services companies we own based upon the expected outcome and benefit of what is going on with regulation or anything like that, such that we make an effort on every day to maximize the value, the risk-return, the potential opportunity from every position within all of our portfolios.

That is entirely different from what an index manager does. What they do is say they can do it cheap. They can do it for five basis points, four basis points. Let me tell you, Vanguard is not a nonprofit entity. They don't make any money on their index funds. They make their money by lending out your securities to other individuals, and you never see it happen. There's a whole profit motive behind that that exists behind the scenes that most people don't even consider.

Troy: Some of you have been with us for 8, 9, 10 years. You may have heard me tell you this analogy before. It's similar to an ice tray when we talk about this tilting. There are 10 sectors roughly, 11 maybe.

Charles: 11.

Chris: 11.

Troy: If you think of an ice tray that has 11 different cubes, I know it's an odd number, but just bear with me, and it's water, it hasn't frozen yet. If you tilt the ice tray to one side, what's going to happen? Water is going to go down over here. When certain economic conditions become more favorable, ultimately that's what these guys are doing with the portfolios. They're tilting it so more water flows down, in this particular example, to financial services. Less water is going to stay in, let's say, consumer staples. That's just because the conditions are more favorable, in our opinion, for these cubes here at the bottom that we're tilting it towards as opposed to these up here.

We don't want to just randomly keep money in all these different industries who we don't think are going to benefit, but there are companies within those industries that we don't expect the industries to benefit. There are good companies and also bad companies. Many times when you own just straight index funds, you not only own the industries that are less favorable, you own the worst companies in those industries, which completely are less favorable.

Now, again, we own indexes on behalf of clients. We do it for a risk management standpoint. It's not that it's horrible, we just want to point out the differences between what we do from an active management side and some of the, in our belief, positive impacts that we can make on a daily basis by paying attention to these things. Let's keep the ball rolling. We said financial services.

Charles: Let's get back to-- I'm sorry. If you've been in meetings with me before, I sometimes diverge into other topics of interest. Financial services, we talked about. Technology is just a vital part of the economy in our everyday lives, but a lot in that sector has come under increased scrutiny. You probably get some benefit of regulation allowing more merger and acquisition activity, less regulation regarding some of the products or services they may provide. Technology is probably favorable. One of the things that we always look at is for everything that is good for somebody, there's always something on the other side that's bad for somebody else.

It's not good for everyone, there's other industries that could have headwinds. Health care is the first one that pops to mind because if you get any sort of reduction in government subsidies for Medicare, Medicaid, things such as that, that pressures a lot of companies within the health care industry. We need to be cognizant of that.

Chris: That seems to be-- The one thing that both parties agree on is going after the healthcare companies and getting pricing down.

Charles: You want to talk about--

Chris: Yes. The one that also comes to mind, energy. Drill, baby, drill. We're in Houston, that sounds great. Not if you're a shareholder in a publicly traded company, because energy is a commodity. You drill, you drill, you drill, you get pricing to come down. Most energy stocks in the publicly traded markets don't work very well when oil prices are going down. There are parts of the energy markets that do, but the Chevrons, the Exxons, generally don't outperform if oil prices are going down and gas prices are going down.

Sometimes you have to step back and totally disregard what's coming out of politicians' mouth and reverse it as an investor. If you think about it, under President Biden, he was like, "I hate dirty energy." We had some clients who were like, "Okay, I'm finally giving up on this stuff." What was the best-performing group under the first year of Biden's term? It was the old-line energy companies, because when you tax something, when you vilify something, generally you get less of it, but the price goes up.

Commodity companies, that's how they make their money. Particularly if pricing goes up, whatever they have sitting in inventory becomes worth more, and it's infinite amount of return on invested capital. Energy stocks, generally not likely to have a great performance overall. There are certain areas he wants to do LNG permitting, which I think Biden put on hold, that probably would be good for some of the contractors and stuff.

I'm trying to think of other industries we've talked about. Technology probably benefits from taxes because they make so much money already. If it's not getting taxed as high, they can do mergers, buy back stock.

Troy: One of the things I found funny, and I'm sure most of you did as well, is during the inauguration and at times leading up to it and post-inauguration, a lot of the tech CEOs that formerly seemed to be adversarial to President Trump all of a sudden now cozying up there. You saw the guy Bezos from Amazon, Zuckerberg, of course, and you start to hear some of those stories come out of some of the pressure they were under previously.

You never really know what's going on, but I assumed that they were against President Trump. Maybe they are, maybe they still are. It was a little shocking to me to see so many of the big tech CEOs, and, of course, now he and Musk seem to be really, really good friends. They're just going to go to Mars together, I guess.

[laughter]

Chris: On the negative side, President Trump and his administration want to increase tariffs.

Troy: That's [unintelligible 00:53:27]

Chris: It's in the press every day. I think right before he came in here, he tweeted, Mexico, Canada, this weekend 25% tariff. The stock market literally went from up to down in 15 seconds. We think of tariffs, but at the same time, you've got to remember what the US economy is about. We're a consumption and service-led economy. We're 72% to 75% domestic consumption and service. You can't tariff that.

If you go get a burger at the local, at Shake Shack, or something like that, tariffs aren't going to mean anything to them. They're not going to mean anything to the banks and financial services. Most of the technology companies, they're not going to mean anything to that. They'll mean something to big manufacturing, which has seen this already eight years ago and started to already make changes. Apple moved a ton of their manufacturing to India over the last four years because of tariffs.

Troy: I don't remember the exact numbers, and there have been so many of these comparisons made over the years. When we look at the top seven stocks in the S&P 500, now it's, I believe-- Is it the FAANG now, or is that the-

Charles: The Mag 7.

Troy: The Mag 7. Any of those companies impacted by tariffs, Charles?

Chris: Smart. Good question.

Charles: Tesla potentially.

Troy: Tesla potentially.

Charles: I guess auto manufacturing standpoint. They have manufacturing all over the world but-

Troy: Maybe one company there.

Charles: Yes.

Troy: Maybe it's a little bit somewhere else. My point being here is how much-- I know we didn't prepare for this, and I'm just throwing it to you off the top of your head, but those seven stocks over the past several years have accounted for more than 50% of the overall market growth, correct?

Charles: In terms of price?

Troy: Yes, price movement.

Charles: Oh, for sure.

Troy: Even though, let's say, we have 500 stocks or so in the S&P 500, a small handful of them account for the wide majority of the returns. My point being here is that, to Chris's point as well, even though there are tariffs, and we hear them all the time, we are not a goods-based economy. If we put tariffs on avocados from Mexico, it's not going to impact Meta or Amazon or, Nvidia or these big, big, big technology companies that really drive the stock market higher, or at least has, over the past several years. Steele was a big one in the previous administration. We want you to just put it into context there. Will the individuals within those respective industries possibly be impacted? Yes, possibly.

Charles: Those poor people at Chipotle are screwed.

[laughter]

Troy: The point being, we focus on retirement and managing money as part of an overall portfolio for retirement. It's very, very minimal, overall as far as the impact on a lot of the companies that we're going to.

Charles: Can I just sort of-- In the press, tariffs equal inflation. Primarily for the reason just described in terms of the nature of our economy, that's a big factor that says no. The other thing that was mentioned is that to the extent that you have manufacturing or product that comes in from abroad, COVID taught everyone a big lesson in just-in-time inventory and the importance of having reliable sources that is onshore, nearshore, and with friendly trading partners and the ability to manage around that.

We hear that in listening to conference calls. You hear companies, because, it's an obvious question to ask, are you prepared of tariffs? They're like, "Yes, we are. We've been through this fire drill before." The final thing to remember is that tariffs are a one-time imposition of a price increase on a particular product. Inflation is a condition of aggregate demand exceeding aggregate supply leading to rising prices over time. Inflation is a rate of change that you want to have coming down or at a stable level.

It's a problem that absolute level of prices are high. Go buy a dozen eggs right now. That's a good indicator. The price is high, and you'd like to see it come down, but at least it's not going up any further and you can adjust. Those three factors, I think, differentiate why you shouldn't be fearful of inflation as a result of tariffs.

Troy: Ultimately that is what the Federal Reserve is trying to-

Charles: Exactly.

Troy: -discern from all these, various pieces of information. Getting back to the original concept here, the magnitude of the movement based on the decisions that are being made, the Fed is waiting to see what are the economic impacts of the pro-growth Trump policies on some of their mandated key performance metrics. Unemployment and growth and inflation, are these things being impacted by the pro-growth policies of President Trump? Maybe they aren't so pro-growth. Maybe they don't have the same impact that they are expecting. It's possible. That's what the Fed is really waiting for.

Chris, you mentioned Goldilocks, and so I want to get to Goldilocks. I want to talk a little bit about some other things that may impact the market before we go to Q&A session. When you talk about Goldilocks, we've had a couple things really happen this week. The Federal Reserve did not lower interest rates as expected, but then we got a GDP print that was also lower than expected for what that's worth. What is Goldilocks when we talk about it in the sense of it being really, really good for the market? Any economic news that's coming out, has come out, could potentially come out in the coming weeks or months, put us down that path of what you hear of Goldilocks.

Chris: Goldilocks for stocks, historically, has been 2% to 3% growth, 2% to 3% inflation, add them together, you get 4% to 6% real economic or nominal growth. That's Goldilocks, supposedly. Data that's coming out-- You put me on the spot, man. GDP figures from Atlanta Fed, I don't know. I don't follow them because any piece of data that gets revised by 30% to 50% in the next two to four months-- I'm sure there are engineers in here who've had statistics classes. If it's getting revised that much, it's not real. I'm not going to follow it.

We follow real-time data from the markets. I watch real interest rates. We watch the dollar. There's all talk about US exceptionalism. We are exceptional because money likes to be treated the best, and it's going to go to the countries that treat it the best with the least amount of friction. Whether we like it or not, America still treats capital better than almost every country in the world. People talk about a strong dollar. Well, stocks, the overall market would probably like a weaker dollar.

Under Trump 1.0, the dollar went down all of 2017, and it was great for earnings. That's why stocks like weaker dollar earnings. I'm watching the dollar and the dollar peaked about four or five weeks ago pretty much when you turned on the financial news and they're talking about US exceptionalism and the strong dollar and it's going to, I don't know, 120 or something and sure enough, that's been the peak in the dollar. Lower dollar would be great for a lot of boring stocks in the market that haven't done anything the last year. The Pepsis and Cokes and all these stocks.

Troy: When the dollar itself is lower, it becomes cheaper for other countries across the world to buy goods from the United States. It improves corporate profitability and corporate profitability is what drives stock prices. When interest rates are higher here, it's more attractive to currencies or people who hold currencies in other denominations because they then convert it to dollars to get higher interest rates. One, you have the security of the US dollar, but then also you have high interest rates. More demand for dollars causes the dollar to be worth more, more valuable, which again, academically hurts corporate profits because they sell less goods and services globally.

Chris: It's great for consumers, particularly if you're traveling-

Troy: Overseas.

Chris: -abroad, but it's bad for foreign companies who are operating in foreign markets.

Troy: Government data, you're not a fan of. You're not going to wait-

Chris: Troy-

Troy: -in bated breath for this next jobs report?

Chris: We've been doing this six years and people who work at Oak Harvest know not to come to me on the day economic data is released because I don't care.

Troy: What was the most recent revision? Maybe not most recent, but-

Chris: 830,000 jobs-

Troy: Revised.

Chris: -were revised out of thin air last year.

Troy: We've talked about this numerous times over the years. When the government comes up with this data, just to discuss this briefly, they're always looking in the past. They're looking at what transpired over the past two to three months and then they get more information, then they go back and they revise those numbers. A lot of the government information, when they're headlines, it's nothing you should pay attention to.

Charles: Right. Let's reconcile a couple of things that have been said here. The first thing we said is that capital markets are very much forward-looking. We also said that the Fed is data-dependent. They're looking at data before they make a decision. We heard that comment a couple of times. They want to see data. Then we just said that a lot of this data is backward-looking and is often revised. That puts you in a very dangerous position where the most powerful monetary authority in the world is using what we believe to be-- I don't want to say it's flawed data, but it's maybe not the right data to make very important decisions.

That's where you wonder, "Those guys at the Fed, they are so smart. How can they possibly make a mistake?:They're making some assumptions that might be fundamentally flawed, and it is that the data that they're looking at is valid and accurate. If you want to know what inflation is like, listen to a Chipotle earnings conference call, and they'll tell you about beef prices, avocado prices, chicken prices.

Troy: Labor prices.

Charles: Labor prices and stuff that really matters. That's what we spend a lot of time doing to try and get ahead of the curve.

Chris: For all of you who don't know, this is why Charles and I have worked together three times in 30 years because he has a lot more tact than I do. We remain friends. The good thing is that Chairman Powell has actually, in a number of conference calls, said, "This data we're looking at doesn't look real. I don't believe it. It's going to be revised." He's actually the first Fed chairman I've ever heard who's recognized the lackings of the data.

We look for things that are leading and predictive. It's a joke around the office now. If you want to look at a leading central bank in the world for interest rates going up and down, anyone want to guess a country? It's north of us, Canada. They actually were raised rates before we did. They started lowering rates before we did. I don't know why, if they get better data than we do, or what.

Charles: Not only are they nice and polite, they're a better economist.

Chris: They just cut rates a couple of days ago. Lo and behold, our economic data is coming in weaker than all the economists are thinking.

Troy: Maybe when they become the 51st state, you could have a Fed official.

[laughter]

Charles: That's it.

Troy: Join our board.

Chris: Actually can take over the economics department in DC.

Troy: I want to take five minutes before we move to Q&A to just talk about volatility because I know this is important to a lot of you. The concept of volatility. When we do financial planning, and we create the allocation, and we invest in a certain level of stocks and bonds and other tools, it's because we want to keep volatility within a certain range, and also achieve the growth that we need to generate the income or the other goals that you have.

Chris, when we talk about volatility, internally, we look at volatility two different ways. One, we have to have the awareness to understand the way you guys look at volatility. The way you look at it is the market up today or down today? That's emotional. It hits you in the gut when the market's down significantly. To you all, that's volatility. Not that it's not, but when we're looking at it from an investment management standpoint, we care very, very little about the actual day-to-day movements. What we're more concerned about with would be considered a forward volatility.

Chris, talk a little bit about the difference just between what's happening today in the markets and how emotionally that may impact every single one of you when you see your portfolios doing really, really well or doing bad. Then from an investment management standpoint, what's more important when it comes to decision-making?

Chris: When it comes to volatility, I tend to think of it, as we were saying, and as far as forward volatility, however-

Troy: Sorry. Real quick, let me explain what forward volatility is. You can go out into various markets today, and you can actually buy or sell volatility in the future. If you think volatility would be higher or lower in the future, you can make an investment six months from now, three months from now, or nine months from now. There are markets out there that are gauging what they expect volatility to be in the future. They tend to be some of the most accurate-- I shouldn't say that, but-

Chris: They have been when I've looked at them. I actually would like to digress just a little bit and think of it more in terms of there is no free lunch in the stock market when it comes to volatility. You can look at it over the last three years. If you're going to buy a really fast-growing company, if you're going to buy a Facebook or-

Troy: Nvidia.

Chris: -the fastest growing companies, Nvidia, that company is going to grow 30%, but in any given year, the stock could be down 50% or 75% like it was in 2022.

Troy: Or Monday when it was down 16%, 17%?

Charles: 18%.

Troy: 18%.

Chris: That's volatility. In 2022, the Dow Jones, which is a very-- It's only 30 stocks, they're value stocks generally, they pay dividends, they're boring-ish. I think the Dow Jones was down 7% in 2022, and Nasdaq was down 35%. There were a lot of stocks within Nasdaq down 75%. Most of those Nasdaq stocks now are all at new all-time highs. People are like, "Oh, that wasn't so bad." To me, that's volatility right there.

At Oak Harvest, we have multiple tools. From an equity standpoint, we have a dividend growth fund, which has got generally less volatility because it's trying to provide you income. The stocks aren't growing as fast as our growth fund but the growth fund doesn't provide income. There are tools in the stock market that you can still get growth, you can get income, you can get a little of both. That's what I wish people would take away from the volatility argument because I know if you turn on the TV and the market's down-- What was it a couple days ago? It was down-

Charles: 4% of the market.

Chris: Yes, it was down 4%, and something 79% of the S&P 500's market moved down. That day it was down, I think, 1.5%. 79% of it was Nvidia. One stock attributed almost 80% of the move down. That's volatility, that Nvidia going down 16% or whatever the number was in a day. Charles, Dwane, who I don't know if Dwane's here.

Troy: He's here.

Chris: He does a lot of our quantitative stuff. He's been with us now about two years. We've all worked together before and put together portfolios. We have a new mutual fund tool out there that its goal is to help manage volatility on the way up. Get you invested, keep you invested. It's got different tools than other things.

Troy: Let me bring the conversation back. I want to jump to Q&A and be respectful of everyone's time. Volatility moving forward, 2025, that's the question. That's what I want to focus on for just a second. 2017, the market went straight up. We don't expect that to happen this year. What should everyone in the room expect? A ton of volatility, month to month, day to day? Again, we don't have a crystal ball, but educated best guess, what type of volatility do we see moving forward in 2025?

Chris: If you look at what the insurance guys who price this, they would say it's going to be a normal year. We will get possibly a minus 10% move, which is in normal years throughout the year. The way the volatility curve is set up, we will more likely get multiple minus 5% moves, but in an upward trajectory of the market. Most of these big down moves, 10%, come during summer when liquidity is low, when earnings expectations get wobbly. That's what the markets say now. That's what they said--

You could go back and study soft landings. The last one was '95 through '98. Right now, we're sitting on top of 1996 with Alan Greenspan. He cut rates three times in '95 and then went on cruise control in '96. '96 was a choppy year upward trending. I think it was up about 12% by the end of the year. There were some big swings. Once we get up 5% to 8% on the year, it might go right back down 5%. It wanted to go higher throughout the year.

Troy: Overall, we're looking at a pretty positive year. We do expect some volatility. To Chris's point, normally in a normal year, five to 10% pullbacks throughout the year are fairly common. If you look throughout history, they happen almost every year within a positive year. That would be normal. Charles, before we shut it down to questions, I want to give you an opportunity to provide any last thoughts or comments.

Charles: I love it when you do that. Our clients, and just about anybody, the day we talk about volatility, they love upside volatility. They just don't like downside volatility.

Chris: That is exactly right.

Charles: From a statistical perspective, we're talking about two different things. We'll focus on just trying to drive as much upside volatility as we can.

Troy: What I want to do at this point is thank everyone who tuned in online. We were live-streaming this for YouTube tonight. We had a lot of really good clients online. David, want to say hello to you. You're one of the last people who commented here. I saw a lot of people I'm familiar with, a lot of people who are considering maybe working with us, and people who just always tune in to our live stream.

I want to thank everyone very much who tuned in for the live stream, but we're going to go ahead and shut the cameras down because we want to give an opportunity for you guys as a private special session just to have a one-on-one conversation with myself, with Chris, and with Charles, on the investment team. Anything on your mind, any questions that you have. We'll try to do that for about 10 minutes and then dismiss everyone. If you have anything going on now and you need to leave, please feel free to go ahead and take off. We do want to open it up for questions at this point. Heather, if you guys could bring the microphones around. If you do have a question, just simply raise your hand.

[music]

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