Same Old Song and Dance

CIO Chris Perras covers recent market action, explains sector leadership in a traditional bull market, and discusses whether or not forecasts from multibillionaire hedge fund managers are trustworthy on the 9/6/2019 edition of Stock Talk!

Chris: Hey, I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group, and welcome to the September 6th edition of our weekly Stock Talk podcast: Keeping You Connected to Your Money. Honestly, I have nothing really new to report. It’s the same old song and dance. Summer’s almost over and we have seen the normal summer volatility with the VIX doubling from about 12 to 24 into early August, from their volatility now sits around 16. This week we saw a thaw in the China and US trade talks when they decided to meet in early October to make progress in their talks.

This is pretty much exactly in line with the outlook the team at Oak Harvest has laid out all year. A slowdown in the second and third quarters with the stock market making no net progress till after we exit the third quarter dead zone and pre-announcement time period in late September and early October. I will say that if listeners want an idea what a bull market does look like, what asset classes, groups and sectors lead and what lags this week’s leadership is almost a perfect reflection of a traditional bull market. What has led the up move this week? Higher volatility, more economically sensitive groups like industrials, financials, old-line technology like semiconductors and small-cap stocks.

This is where the value lies in today’s market, but where investors have fled since August of last year. What groups have lagged the market the second half of this week? Those are real estate, staples and utilities. Those are the low volatility groups that everyone has been hiding in for over a year. I do have to reflect on the daily guesstimates at the percent chance of an economic recession in happening, which is one of the most ludicrous things I’ve heard. One of the most successful hedge fund managers of all time came out literally 13 business days ago on August 16th in the financial press and was widely quoted as forecasting a 40% chance of a recession before the election next year.

We had a few clients call us in a panic over these stories and comments. At that time, I pointed out that this story was one of the most ludicrously followed financial stories of that day. Case in point, that same multi-billion dollar hedge fund manager was widely quoted last night across the exact same financial press as predicting a 25% chance of a recession before the end of 2020 and almost no one in the press said, “Hey, wait a minute. You said it was 40% two weeks ago.” No one also pointed out that that manager is down over 5% year to date, while the stock market has rallied almost 20% year to date off of very depressed year-end levels.

Listen, this is a very humbling business. We all make mistakes. The best managers change their minds and change their strategies when the data and the facts change but coverage of these opinions, there’s no one who is saving and investing any good. I figured at this rate, this widely quoted hedge fund manager will be at a 0% chance of a recession around the second week of October, which not coincidentally would be around the time the team at Oak Harvest has seen the pivot up in the market happening all year.

I want to impress upon our listeners that what has happened this year is 100% normal during the summer in ongoing bull markets. We continue to see lower volatility coming in the fourth quarter as the Federal Reserve continues along its slowly easing monetary policy. We continue to see a year-end move in the S&P 500 to new all-time highs in the market that are sustained into year-end and through 2020. If we begin to see the data and feel that an ongoing 18 month slowdown is not looking to change course early in the fourth quarter and beyond, we will begin to tactically adjust portfolios for our continued low and slow-growth economy.

If you find this content helpful, please forward it to friends and have them give us a call at 281-822-1350. Browse our updated website at oakharvestfg.com. Our main job at Oak Harvest is to have you retire only once in your life with a customized retirement planning. Many blessings. This is Chris Perras.

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.