America Strong/Markets Strong

Join Chris Perras for the 1/8/2021 edition of Stock Talk!

Chris Perras: Good morning. I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group here in Houston Texas. Welcome to our first weekly Stock Talk podcast for 2021, Keeping You Connected to Your Money. I was going to do the full version of our first half 2021 outlook, but given this week’s political events in both Georgia and Washington DC, I’m going to focus this week’s podcast on those current events. The title of this week’s podcast is American strong, bent not broken, same as the stock markets. I’m going to try to stay away from political biases here and focus my attention on the things that matter to investors.

Earlier in the week, some investors were fearful of the return of a Democratic blue wave caused by the Senate races in Georgia. The investment team at Oak Harvest covered this outcome numerous times in the months preceding the elections last year. We covered it. We covered what it would and would not mean for the markets. As we discussed back then numerous times in podcasts and in written materials, stocks have done equally as well under both divided government and single-party control, particularly when that single-party control is one, when the majority is held by a very narrow margin as it is right now.

I received a few texts the night of the Georgia Senate runoffs earlier in the week from friends of mine who live in Georgia. As the results were coming in in favor of Democratic candidates, these friends of mine who leaned very, very conservative were texting me predicting market collapses and turmoil in the streets. What happened to the equity markets the next morning when they opened, on Wednesday? Instead of going down, they went straight up and made new all-time highs. The bond market sold off.

What groups led the stock market higher Wednesday? Financials, construction names, energy stocks, exactly the groups one would expect under a Biden-led administration. To me what’s really interesting and ironic is those are the exact same groups that bolted upwards in the fourth quarter of 2016 when President Trump was elected. Intraday, the overall S&P 500 was up 1.5% on Wednesday trading at a new all-time high, and that was with large-cap tech stocks being down. Volatility had started to collapse again towards the low 20s. It didn’t rise post-election as most people on TV had predicted. Then around 1:00 PM Central Time, the real chaos in Washington DC started.

As we all know by now, our current president, still hurting from his narrow loss in November, helped incite a riot in a short-term takeover in the Capitol Building in Washington DC, done by a small group of his most die-hard followers disrupting and delaying the ceremonial electoral vote count in Congress.

I hate this term, but here it goes. It was unprecedented in modern times in the United States. I will forever remember where I was when I was watching TV and watching the news and those live events. As a portfolio manager in a fiduciary, I was forced in real time to sort out what this might mean for our clients in the markets. In the end, in that very short period, I did nothing on Wednesday, but looked for buying opportunities, not selling opportunities. Much to the amazement of most, the market still closed green on Wednesday and then again green yesterday, closing at new all-time highs.

In fact, the S$P 500 sits now over 3800. Why? Because the markets are forward-looking. The markets see an environment post-first quarter 2021 of much lower sustained volatility. At the same time, the economy starts to reopen and reaccelerate. Election uncertainty has kept hundreds of billions of dollars if not trillions on the sidelines for the last nine months, and millions of older investors unwilling to make new or follow-on investments in their accounts. Large institutions have been the buyers of stocks the second half of 2020 as most retail investors invested more cautiously.

Now post-election, in the new calendar year, institutional tax loss selling is over. Fourth quarter earnings reports are coming out in the next day and the next three to five weeks and they will be, overall, better than forecast. Like the political outcomes or not, more fiscal stimulus is coming. What will that fiscal stimulus do? It will pyramid additional positive dollars into the economy on top of the Federal Reserve’s monetary QE5 stimulus that just began in November as well as the economic reopening should gain moment throughout 2021. After, what I see is probably a first-quarter slowdown.

The data continues to line up with what our team has been messaging since our second half 2020 outlook published mid-last year. That message has been, the fourth quarter of 2020 through early 2021 would show accelerating stock returns with the market making and sustaining materially new all-time highs, and then January, showing an exponential move upward to a short-term peak near month end or maybe early February.

Listeners, at Oak harvest, we try not to be reporters of what has already happened in the economy and in the markets. The investment team by way of our weekly podcasts and emails are trained to keep you ahead of the curve. We’re trying to help you see what might be around the corner before others do, or give you some answers to questions even before they’re asked. Hopefully, we’re helping educate you in advance of what you might hear on TV in the news networks or in your social network feeds.

We released our first half 2021 outlook a few weeks ago by way of podcast. It is posted on our website at oakharvestsfg.com. Go to our website, check it out. Where does this leave us now? Listeners, we are in a bull market. We are trending higher to new all-time highs in a bull market. Listeners, please do not let the recent election results and what is going on in politics become an emotional event or a crusade that drives your financial behavior. These events are beyond our control.

Each election period since the great financial crisis in 2008 in 2009 have shown similar patterns in stocks into and out of each election and the markets and the economy showed similar responses post-election. This is how early bull markets look. With that in mind, investors should look for an increase in volatility and a correction in the market in February and March as we digest fourth quarter earnings and most likely experience a first-quarter slowdown. We will be using this correction to get our clients additional growth exposure for further reopening our economy in the second half of 2021.

At Oak Harvest, we are comprehensive long-term financial planners. What this means is that, as our client, you and your financial advisor should have a financial plan that is independent of the volatility of the stock markets. Give us a call here in Houston at (281) 822-1350. We are here to help you on your financial journey in retirement through customized retirement planning. Many blessings. Stay safe. God bless you and your families and God bless America. Regardless of who is in control in Washington DC, we are stronger together than we are divided. This is Chris Perras, Oak Harvest Financial Group.

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