It’s the Robinhood Rout… Not!

Join Chris Perras for the 6/12/2020 edition of Stock Talk!

Chris Perras: I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group here in Houston, Texas. Welcome to our weekly Stock Talk podcast: Keeping You Connected to Your Money. This week’s podcast is entitled, It’s the Robinhood Route. Not.

As of Thursday night, the S&P 500 sat around 3000 after an almost 200 point one day 6% decline. You ask, what caused this one day dump? Was it as the financial news networks suggest? Was it those Robinhood millennial day traders? No. However, they are a very convenient excuse, as millennials seem to have been for years now. Listeners, I must confess, for many years, I’ve been blaming the millennial generation for a lot of things. I’m almost 55 years old. I was born in the late 1965, which was really at the very tail end of the baby boom. I have two late millennial aged early 20-year-old boys, and have another five late millennial age data points and stepchildren. For quite a while, I blame millennials for a lot of things. Heck, they were generationally lazy, as all new generations seem to be.

They sat in their bedrooms and they played lots of video sports games and war games, that’s instead of going outside and playing basketball, or playing war in the woods like I used to do. They sat inside and they chatted with their friends way too much on the internet, on Skype, on Instagram and Snapchat, instead of waiting by the phone for the phone to be free, or waiting for call waiting, or hanging out with friends at the local Pizza Hut and McDonald’s, like I used to do.

The millennials, they started watching way too much Netflix about five or six years ago. Watching YouTube comedians, and glorifying top Amazon Twitch channel online video gamers who are now getting paid millions of dollars. How dare they do this? Instead, they should stay up late and watch Saturday Night Live the way I used to do it before there were VCRs and on-demand TV. Listeners, why would anyone do that ever again? You can watch a TV show anytime of the day, any day of the year now with technology.

Millennials, aren’t they supposed to be out glorifying real-world football and baseball players like I did when I was growing up? Millennials don’t watch live sports. They didn’t grow up watching live sports. They will most likely not be watching much of live sports in the future. They grew up watching online gamers. That’s what they’ll be watching in the future.

Now, guess what? Many baby boom aged commentators on the TD financial networks, almost all of these commentators who universally missed the rally off the March lows because they were scared and they were calling for new depressions, but now, they’re out blaming millennial day traders for both the stock market run-up the last few months and now the three-day sell off. What do I have to say to all this? There’s not a chance in hell that millennials were the cause of the run-up in the recent decline. The stock market’s recent three days decline were rapid and extreme, is not abnormal in the early stages of a new bull market. In fact, as we said on our podcast over two weeks ago, a June sell-off is normal. Moreover, actually breaking back below the 200-day moving average, which is around 3000, 3020 on the S&P 500, is normal.

Finally, testing the 20-month moving average, which is between $29.15 and $29.55 on the S&P, is also normal. These sell-offs are the dips one gets early in a new bull market. Clients can go ahead and log on to our web portal and view a few charts provided to us by Strategas Research, who have been early incorrect in the three-month rally. Strategas is data-driven. They’re not opinion-driven. What one will see in the charts is that as of early this week, the stock market was more overbought than any time over the past 30 years. This was while investor optimism measured on multiple fronts reach short-term extreme levels. What did this mean? This meant that there was an increased risk of a stock market pullback. Why? Listeners, pick a reason, any reason. Make something up. That’s what most commentators on TV do. They do this after the fact.

Why does the team at Oak Harvest think we pulled back this week in June? We think it has pulled back for the same reasons we started weeks ago, the virus stats would get worse with a lag for Memorial Day and the state’s reopening. June is a normally mediocre to bad month for equities as we sit in the dead zone of the second quarter.

This week, when investors stopped focusing on the protests and the TV headlines of racial inequality, they started refocusing on what has actually mattered to most financial markets the last three months, the virus statistics. When the treasury bond market started rambling early this week, the US dollar troughed, and the volatility index started to pick up slowly, all while stocks were going up on Monday. That just set the table for this week’s sell-off as big short-term investors, like Risk Parity and macro hedge funds, were caught off balance when the Federal Reserve came out on Wednesday and said they would keep interest rates at, or near zero until 2022.

Long-term treasury bonds state a massive two-day rally. As listeners know, lower long-term interest rates, while good for technology stocks, particularly the growth at any price group with almost infinite PEs, lower trending long-term rates are not great for the overall stock market. Why? Because the gain in the stock market multiple tends to be offset by the decline in earnings forecast by a flattening yield curve.

Why did bonds rally? First, the Federal Reserve downplayed its belief in a V-shaped economic recovery. This is the answer most people will live on TV. I think it’s wrong. Historically, the Federal Reserve has a horrible record forecasting the economy and the stock markets. Just know that, over the years, they do not get it right. More likely, the reason for the bond rally was the Federal Reserve mentioned the possibility of yield curve control. I will not get into the detail of what this means, because even they don’t know what that is right now. I would venture it won’t be positive for the large parts of the stock market if they do it.

Listeners, let us stop blaming the millennials for everything we do not like or do you not understand as baby boomers. Listeners and clients, please stop listening to those commentators on network TD who are placing blame on them now. Many of these commentators, who are no longer running other people’s money, were doing the exact same things with their money in the late 1990s as they were younger baby boomers, investors, and portfolio managers. They were starting to dabble in speculative internet stocks.

Instead of getting their news off of Reddit and Twitter, as millennials do now, they were on the phones creating rumors themselves. Millennials trading at Robinhood did not cause the stock market runoff or selloff. Yes, the zero-commission mobile platform trading that Robinhood has invented is bringing into the market a new type of investor. Charles Schwab and other brokerage firms have all had to follow Robinhood’s lead. However, this is no different than when Charles Schwab went to fix the commissions years ago, instead of commission-based on a percent of dollars traded.

Listeners, let us stop blaming the millennials for things that we do not like or understand as baby boomers. I have come to realize, as a parent and investor, hopefully not too late in my life, that every generation is mostly the same. It is a technology and its use, if we are open-minded to this, that is the difference. First, if we understand this, we will most likely understand and get along with the younger generation that will be driving this country and the economy for decades to come. Secondly, we will be open-minded to changes in secular themes that drive longer-term trends and higher investment returns.

I am looking into adding a third mid-week point of contact with our investment clients and listeners. In addition to our weekend update on Monday mornings and this podcast on Friday afternoon, clients and listeners would get a third view from our team on Wednesdays. I’m planning on titling this The Bridge, and in it, address, by way of articles and interviews, a variety of topics, both investment and social. The goal would be to bridge the generational divide between the two largest cohorts in our economy, the baby boomer and the millennial generations. Let me know what you think and if you have any topics you would like addressed.

The team at Oak Harvest is looking to take advantage of any June swoon, as I’m sure you will hear it coined on the TD networks, to buy stocks for the second half of the year. Our team believes that the economy is going to be much improved and better than the TD networks tout in the second half of 2020/21. Why? First, the collective energy of the global healthcare intellect is racing to develop antivirals and vaccines for the virus. We will not bet against science, technology and the human spirit to find a solution to this virus. 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.

If you’re 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 that you have into and through your retirement years with a customized retirement planning. Many blessings. This is Chris Perras at Oak Harvest. Have a great weekend.

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