Stocks Should Rocket… Not Blowup Like SpaceX!

Join Chris Perras for the 6/5/2020 edition of Stock Talk!

Chris Perras: Good morning. I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group, and welcome to the June 5th edition of our weekly Stock Talk podcast: Keeping you connected to your money. This week’s podcast title, booster rockets, and I’m not talking about last week’s SpaceX launch. First off, I have to admit that last week’s podcast timing was ill time.

The investment team at Oak Harvest has been preaching at the bottom in both the economy and stocks since our March 23rd YouTube video. We’ve been talking to clients for the past eight weeks about new all-time highs this year, and much higher in the fourth quarter of 2020. Even more in the first quarter of 2021. We’ve been sending out data to clients and prospects on the history of V bottoms.

We’ve been out there trying to quell the non-stop talk by “smart money billionaires” on the financial news networks of the coming second depression with both data and analysis, not opinion. We’ve been trying to negate all the calls on network TV for a repeat of the 1918 Spanish Flu outbreak with the economic and stock market story that factually followed the Spanish Flu.

That was the roaring ’20s. We’ve been trying to educate our clients and listeners with data and analysis, not emotional fear-mongering. That being said, I was not expecting this week’s 4% move above 3,050 in just five days. What has caused this further blast off this week? Well, first, the European Central Bank known as the ECB joined the liquidity party the Federal Reserve began eight weeks ago, and they initiated their own massive bond buying program.

This drove up a massive short covering move in the European currency and European stock markets as most hedge funds were short, these indexes. These moves in turn accelerated a selling in the US dollar in longer-term risk-free treasury bonds. That caused a steepening of the US treasury interest rate yield curve. As we have said for two years, as steepening of the yield curve, and a weaker dollar are bullish for stocks.

Why? Because it forecasts improved earnings, a stronger economy, and increased investment and the stock market’s breadth improves, and more sectors besides tech, besides the Fang stocks work, financial stocks work, industrial stocks, work, cyclical stocks work, small cap stocks work. This has happened time and time again, the past 10 years for this cycle. For the past 10 years, it doesn’t matter why it happens.

Today, I’m going to put it in perspective, this morning, the S&P 500 is up about 2%. The safer low beta stocks are up about 1%. The technology stocks, the Fang stocks when the market opened were actually down. They’re now up about 1% as well. The perceived higher risk stocks, those with higher beta, which really are energy, industrials, and financials are up close to 7% today.

That’s in one day, those registered investment advisors out there who sold 100% of their clients stocks on the way down in mid-March, while they err tactically allocating your money. They’re not looking very smart. In fact, they’ve been wrong on both accounts. They were selling stocks and buying bonds. When you should have been selling bonds and buying stocks.

Secondly, this week, the volatility index has continued to collapse, not increase. This gave a midweek boost to stocks as hedge funds and risk parity funds, who we’ve talked about on past podcasts, who both generally trend follow, they’ve gotten blown out of their shorts and are now trying to buy back stocks and get leveraged on the way up. They missed the bottom.

They missed the first eight weeks of the rally. Now, they’re trying to buy stocks. This boosted stocks midweek. Finally today, an exclamation point to the nine week move that is defied 99% of the people I’ve heard on CNBC and Fox Financial news. We got a better jobs number in the midst of a pandemic. We actually added jobs back to the economy this week. That’s probably about a full month before most investors thought it was possible.

That’s against all the coming second depression, the calls by a former hedge fund manager on CBC that’s against Ray Dalio being quoted about the repeat of the 1930s depression and stagnation is at hand, that’s against the backdrop of almost every bond group guru who doesn’t manage any equities coming on TV, predicting a retest of the stock market lows. What has happened?

The S&P 500 is up 42% off the March lows, amongst all those doomsday calls on both the economy and the stock markets. Well, the S&P 500 now sits about 2% from flat year to date and it’s up about 12 to 13% year-over-year. The NASDAQ is up 9% year to date. As always, the financial markets have moved faster than the economic data has moved. This always happens at the trough of an economic cycle.

Listeners, please remember that, I know we’ve mentioned it for weeks now, waiting for the clouds to clear produces mediocre long-term returns. As we’ve covered for weeks, most investors are shocked to hear that the best performing sectors on a percentage basis, since the March 23rd lows have been offensive-minded stops, cyclical stocks, high beta stocks, not the safety stocks most of the TV commentators have been pitching, not the bonds that some RAs went into when they panicked on the way down.

Why has this happened? It’s because long-term investors looked at the federal reserve moves and said, “While the economic slow down will be sharp, the recover would be sharp as well.” The team at Oak Harvest builds diversified single stock ETF and mutual fund portfolios. Therefore, our clients will always almost have exposure to groups, sectors, investment styles that come in and out of favor by faster short-term investors.

We are seeing a rise in reported COVID cases domestically. We’re seeing it here in Texas. They’re having it in Florida. There’s about a seven to 10 day lag from increased social gatherings to increase virus activity. Unless something changes, if this causes a pullback over the next two to four weeks, we will be using any weakness in the markets to continue to position portfolios positively for the second half of 2020 and 2021.

Why? Because as we try to emphasize since the March 23rd lows, this is most likely a [unintelligible 00:07:28] in both stocks in the economy and the retest the lows crowd and the great depression round two calls, they are going to be wrong and disappointed. They already are wrong. I’m sure they were disappointed.

We’ve said this almost weekly, but I have to emphasize it again. The team at Oak Harvest believes that the economy is going to be much improved and better than the TV networks tout in the second half of 2020 in 2021. Why? First, the collective energy of the global healthcare intellect is racing to develop antivirals and vaccines. We’re not going to bet against science. We’re not going to bet against technology, we’re not going to bet against the human spirit. There’s no way I’m going to bet against the Federal Reserve.

We’ve been saying that for eight weeks now. At Oak Harvest, we’re comprehensive long-term financial planners. What this means, that as your client, you and your financial advisor should have a financial plan that is independent of the volatility of the stock markets. If you are retired or in the process of retiring, give us a call at 281-822-1350. We are here to help you plan your financial future and help smooth the financial path you have into and through your retirement years with a customized retirement planning.

Many blessings, stay safe. This is Chris Perras, at Oak Harvest vineyard.

Speaker: The proceeding 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. It 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.