General Market Recap and Commentary

Join Chris Perras for the 5/1/2020 edition of Stock Talk!

Chris Perras: Hey, I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group and welcome to our weekly Stock Talk Podcast: Keeping you connected to your money. With the S&P sitting near 2850, which remains basically flat for three weeks, I wanted to return to some general market comments. In the midst of the pandemic virus economic lockdown that has seen over 30 million Americans file for unemployment benefits, the S&P 500 surged over 12.5% in April, making it the best monthly performance since January of 1987 and the best April since the 1930s.

To clients of Oak Harvest and listeners of our podcast and YouTube channel, this should not come as much of a surprise. In late March and early April with the market near its lows, we highlighted on multiple occasions, that the list of best performing days, weeks, and months almost always come within the same short-term time windows of the worst time periods. The lessons from these episodes remain the same. First, you have to be in it to win it and stay the course with your financial plan during periods of high volatility to earn the longer-term investment performance rewards of owning equities.

If you want the potential average return the equities have given over long periods of time, which is that 8% to 10%, you have to endure both the ups and the downs. Secondly, if an investor feels uncomfortable and realizes their risk tolerance is lower than they thought, well, if they look their financial situation with their advisor, decide that they can live comfortably and with less anxiety without a high allocation to stocks, the time to make moves towards more conservative asset allocation is during times of lower volatility, not during times of high volatility.

Some advisors boast that they have a system and defined process that can “get their clients out”, that they tactically allocate their clients out of equities and into cash to protect downside risk. Every system and I use this term loosely, that I’ve ever seen, is merely a rudimentary trend following charting system that overtime does not work. I’ve never seen a system that can get an investor out and back in in a timely and tax-efficient manner to warrant using the system.

They are almost always late selling and late buying back in, [unintelligible 00:02:28] the client poor to horrible performance at the expense of- and I say this loosely too, peace of mind. They are all fear-based systems. After this big April rebound, where do we sit? Well, listeners, we sit where we normally do at this time of the year, approaching a plateau with albeit a lot higher volatility.

We’ve rallied significantly off the late March lows on the back of the Federal Reserve flooding the financial markets with liquidity a reasonably good first-quarter earnings season because the virus hit a month left in the quarter in March and not during the entire quarter, and we’ve recently seen some promising drug data to combat the virus. We’re now entering the normal mid-year period where economic activity is less certain. This year, we do it with the ongoing effect of the virus impacting second and possibly third-quarter economic activity. Additionally, we do it at a time when the 2020 election nears.

While volatility has come down considerably from its extreme in mid-March, we do expect it to remain higher than normal over the second and third quarters. It currently sits at about two to two and a half times its normal calm level of 12 to 14. Number-wise, it means it’s sitting at 28 to 35 on the VIX. This means that many great opportunities will show themselves over the next four to six months, but then investors should remain patient to take advantage of those opportunities.

Previously, the team at Oak Harvest stated our view that the late March lows are likely the bottom of the market. We’ve shared some historical data on why we’ve used this as likely. I wanted to pass along another chart. This one compiled by Jeff Hirsch, who is editor of the Stock Trader’s Almanac. He presents a chart on weekly jobless claims and the bear markets in the past and finds that the big secular bear market lows of 1970, 1974, 1982, 1990, 2001, and yes, 2009, were marked by the peak in weekly jobless claims. Clients can go log on to our portal to view this graphic.

The most recent claims figure of 3.8 million for the week of April 25th, while a staggering number is off its peak of 6.9 million a few weeks ago. Listeners, please remember that stocks anticipate and lead both economic downturns and recoveries. As of this morning, we’re about halfway through earnings reporting season and we have not been particularly surprised on what we’ve heard. Apple reported a dip in profits for the fiscal second quarter, but growing sales. Like most other companies, the company said it would not give third-quarter guidance due to the virus and pandemic.

Other large-cap technology stocks [unintelligible 00:05:23] stellar results, be it the likes of Amazon or Facebook, or other names that operate in the online gaming world. Drug companies like Johnson & Johnson, Amgen, and AbbVie posted strong results as drug demand remains strong, while medical device sales have been soft due to a pause in elective hospitalization procedures. Staple companies, while largely stronger, have been more of a mixed bag. Names like Pepsi, Clorox, and other domestic weighted companies posted strong growth due to pantry loading and hoarding by consumers.

Those with higher international sales like Hershey and Coke saw a large drop in China sales dragged down their short-term outlooks. Industrial stocks, as anticipated, have had generally poor results, particularly those with large exposures to the energy or airline end markets. We’ll be using an ongoing but anticipated period of sustained higher volatility through July 4th, to continue to position portfolios for a much better year-end. At these levels of volatility, every week presents new opportunities.

It is a unique reason, the virus. Our elected political officials and Federal Reserve is reacting with unprecedented speed inside to combat this event. Our nation, our economy, and our stock markets have endured numerous unforeseen and unpredictable events over the last 100 years that we’ve endured them, returned to growth, and subsequently prospered. At Oak Harvest, we are a comprehensive long-term financial planner. What this means is that as our client, you and your financial advisors should have a financial plan that is independent of the volatility of stock markets.

If you are retired or in the process of retiring, please give us a call at 281-822-1350, we’re here to help you plan your financial future and help smooth the financial path you had into and through your retirement years with a customized retirement planning. Many blessings, stay safe. This is Chris Perras at Oak Harvest Financial Group.

Speaker 2: The preceding content expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data statistics and sources are not guaranteed. Content ideas and strategies discussed may not be right for your personal situation and should not be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Investing involves the risk of loss, and past performance does not guarantee future results.