Stocks and the Economy: Winning

CIO Chris Perras covers recent market action and discusses several factors we believe could be positive for both the economy and the broader markets.

Chris Perras: Good morning. My name is Chris Perras. I’m Chief Investment Officer at Oak Harvest Financial Group in Houston, Texas. Welcome to the February 7th, 2020 edition of our weekly Stock Talk podcast: Keeping You Connected to Your Money. This morning, we are sitting back near 3340 on the S&P 500 close to a new all-time high. Man, wow, that was quick. We went from Sunday night pre-Super Bowl financial news network proclamations of, “It could be a game-changer to new all-time highs in less than four days.”

With that in mind, I want to dedicate this podcast to stocks, the economy, and our president. I’m going to title this one with one word. Charlie Sheen made this word famous or it’s probably safe to say infamous in his rambling, incoherent, yet embarrassingly entertaining interview almost exactly nine years ago today. What’s that term? Anyone? Anyone? That term is winning.

Here’s a quick recap of what happened the last two weeks in the market in the investment world. With the market sitting at new all-time highs and looking for an excuse to sell-off, the world was hit with the coronavirus outbreak emanating out of the middle of China. The S&P 500 subsequently dropped about three and a quarter percent from its peak to last Friday’s closing low at 3225. That decline was in line with the market’s normal first-quarter downturn during the second year of a Federal Reserve easing cycle.

We previewed this risk many months ago and again a few weeks before the sell-off in our market outlook for the first half of 2020. These podcasts can be found on our website, just google Oak Harvests 2020 market outlook. Regardless of the reason, so far, it’s a normal first quarter. Just last Friday during our weekly Stop Talk podcast titled Pandemics and Pullbacks, I want to quote myself, “The current sell-off is likely one of the better entries investors will get to buy equities in the first half of this year.” Why do I say this? I say this first from a mathematical perspective. Mathematically speaking, the panic and forced selling this week is beginning to show signs of a short-term climactic bottom.

The second reason for believing this is near a first-quarter buy is one based purely on emotional psyche. For those new listeners, our complete weekly podcast catalog can be found on our website at oakharvestfg.com under the investment management tab in the weekly podcasts section.

From here on and for the rest of the first half, the normality of the market should confine market pullbacks to very low ranges of about 2% to 2.5%. This should not be even close to the 5% to 10% number that gets thrown around on the financial news channels. These dire downside predictions from market naysayers were wrong throughout all of 2019, and they will most likely remain wrong throughout 2020.

Less I digress, I promised this podcast would be about other things, would be about the economy and our president and winning. Here it goes. Listener, you may not like or care for our president and his methods. However, the best investors look through their own personal biases and see what the potential outcomes, both positive and negative, of policies and the actions could be in the future.

Listeners, you personally might not like him, but I can show you that as far as our economy, as far as savers, as far as stocks and investors go, he is winning. In fact, it is my belief that come December, should President Trump win a second term as president, the national press is going to look back at the last week in January and the first week in February and say, “Man, President Trump won the election way back then.”

Why? Because the President spent 18 months, from February 2018 through September 2019, slowing down the global economy with tariff negotiations with our trade partners, particularly China. In doing so, he created easy comparables for economic growth in the second half of 2020. In other words, he reset the economic growth bar very low. He then signed a China trade deal at the end of 2019, which should accelerate economic growth throughout 2020, on top of these easy comparables,

Then on top of that, and I do not wish anyone affected by the coronavirus any harm or any ill will, the Chinese Government has effectively shut down their entire country for up to two months early this year. Well, this is certainly a negative for global growth in the first quarter. Beyond that time period, the restocking of inventory, the restarting of manufacturing lines, and underlying pent up demand of consumers wanting and needing to spend in the second half of 2020 will likely cause additional layers of growth. More growth on top of easy comps. What do investors call that? They call that winning.

Furthermore, could the President have had a better exclamation point put on his messaging for the past two years? His messaging for two years has been that the US needs to diversify from and out of China manufacturing. In addition, his message has been that the Chinese need to open their markets more fairly to outside vendors. The virus could not have come at a worse time for China and a better time for our president’s messaging. Whether you agree with him or not, he is winning.

Then last Monday night in Iowa, the Democratic Party pretty much bungled what was supposed to be their grand launch of the race to defeat the President this coming November. Voters and the rest of us didn’t have the vote totals until Thursday, and this is for a small state caucus. They couldn’t even get the technology correct. I do not care what political party my listeners are in favor of or who you want to win in November, but it’s hard to disagree that this was another win for the status quo.

I’m sure the President’s reelection committee has been doing backflips in their office all week. Between that and the Senate dismissing impeachment proceedings against him on Wednesday, I’m not sure that the status quo could have gotten a better week. Oh, yes, did I mention the US stock market closed at record all-time highs, unemployment rates are at all-time lows, and wages for middle America are now growing over 3% per year? Winning.

What else has gone right for the economy and stocks lately? Well, the coronavirus has caused central banks around the world to step up with more easy monetary policies. President Trump has argued for 15 months that our Federal Reserve was too tight on its monetary policy. Whether we agree or disagree with the fight he has picked, it doesn’t matter to the markets, what matters is what is happening, and what is happening is easing markets like that, regardless of what we call it, which puts us right back to our mantra that we have been on since January 4th, 2019.

One mantra is that. That mantra is easing. Yes, that’s right. More winning. Here we sit in early February. While we are early in the year, the first quarter is playing out as a normal first quarter. It is playing out as we laid out in our first half outlook that can be found on our website at oakharvestfg.com. We continue to expect more of the same. We will likely use any new pullbacks over the next two to four weeks, which shouldn’t amount to much more than 2% to 2.5% to continue to position your portfolios for an overall strong 2020.

As we have stated over and over for the past year, the move since January 4th, 2019 when the Federal Reserve’s reverse course have been very normal for this 10-year economic cycle. If your investment advisor has been following the herd selling stocks when they were down last summer on tariff concerns, or maybe they were selling stocks out of your portfolio more recently because someone was bullied into calling the coronavirus a “Game-Changer” on Sunday night right in front of the Super Bowl, give us a call at 281-822-1350. We are here to help you on your way to retiring and staying retired  with a customized retirement planning. Many blessings. This is Chris Perras, Chief Investment Officer at Oak Harvest Financial Group in Houston, Texas.

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