Summer Storms are Clearing, Blue Skies Ahead…

CIO Chris Perras covers recent market action, its relation to interest rates other economic factors, and reaffirms the firm’s year-end outlook.

Chris: Good afternoon. This is Chris Parris with Oak Harvest Financial Group. I’m the Chief Investment Officer here, and welcome to the September 20th edition of our weekly Stock Talk Podcast: Keeping You Connected To Your Money. This week’s podcast is entitled Summer Storms Are Clearing Blue Skies Ahead. Before I start, I wanted to offer the entire team at Oak Harvest thoughts and prayers are with our Houston neighbors, her friends, and family affected by this past week’s storm, Imelda that dumped between 10 and 44 inches of rain throughout Houston in less than three days.

Having had over six feet of water in my house during Hurricane Harvey, almost exactly two years ago. I can personally attest to the emotional and financial repair that will be needed post this event. My thoughts and prayers are with everyone. As of this morning, the S&P 500 is at around 3,010 nearing a new all-time high. The almost 200 points up move that has taken place in the S&P 500 since mid-August has been 100% correlated with anyone.

It is then correlated with rising, not falling long-term interest rates. The 10-year Treasury yield has risen over 30 basis points during the past month. The entire sustained up to move in the S&P 500. For the past 10 years, this cycle has come during periods of rising not falling long-term interest rates, as it foreshadows higher growth, higher inflation, or higher both, and eventually higher earnings.

Earlier in the week, spot prices on oil spiked almost 30% on the back of the tax in Saudi Arabia on their oil production by Iran. Many of the financial press have made this out to be another event that would cause our economy huge problems. However, they fail to mention that oils have become much less of an input to the cost in the US economy over the past 20 years and that we are now producing all the oil we need domestically and are actually exporting oil to the rest of the world.

In fact, the foreign markets for oil while the spot market was at 13%, the forward market was only up 1 to 2% for oil to be delivered out near Christmas. What does that mean? It means that this was largely an event in the financial markets, and it is unlikely to cause much of an issue with our economy this year. Most of the financial press continues to ignore or at best dismiss that the tone of the economic data has been getting better now for over two months with the economic surprise index.

Now not only in positive territory that heading up fast. The housing data has been improving, and even manufacturing data which has been on a 15-month slowing pattern is starting to gradually pick up. Events like this week’s storm, Imelda, while trying and horrible for those involved do lead to stimulation in the economy over the next six to 12 months. As things have to get fixed and have to get repaired.

People go out and they purchase lumber. They purchase tools and electrical supplies. Consumers go out and they rebuy cars that flooded, service jobs in trade industries like electrical and plumbing and construction become more valuable, and workers find additional hours at higher pay. It takes time. It takes months and quarters, not hours and days. This is how our economy works. It is a good thing for the fourth quarter of this year through 2020.

The investment team at Oak Harvest has been investing more heavily in these cyclical and value areas this summer. We’ve been doing this in advance of the herd. We first laid this out in our strategy for the second half back in January of this year. I want to impress upon our listeners once again, what has happened this year is 100% normal during the summer in ongoing bull markets.

We continue to see lower volatility not higher volatility coming in the fourth quarter as the Federal Reserve continues along its slowly easing monetary path. We continue to see urine move in the S&P 500 to an all-time new high that is sustained in the year-end and even higher in 2020. If we begin to see the data and feel that the ongoing 18 months slowdown is not looking to change course early in the fourth quarter and beyond.

We will begin to tactically adjust the portfolios for the continued low and slow-growth economies. If you find this content helpful, please forward it to friends and have them visit us and give us a call at 281-822-1350, go browse our updated website at oakharvestfg.com. Our main job at Oak harvest is to have you retire only once in your life. Many blessings, I’m Chris Paris.

Speaker 2: The proceeding’s 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.