The Wait is Over: The Pivot-Up is At-Hand

On the 10/4/2019 of Stock Talk, CIO Chris Perras covers our optimistic view for the remainder of 2019, and dives into our reasoning. CIO Chris explains why we could be looking at a pivot-up in the markets as we head into Q4 2019.

Chris: Hey there. Good afternoon. My name is Chris Perras, I’m Chief Investment Officer at Oak Harvest Financial Group here in Houston, Texas. Welcome to the October 4th edition of our weekly Stock Talk podcast: Keeping You Connected to Your Money. I bring to you the first of our fourth quarter podcast for 2019. It is optimistically titled, The Wait is Over, The Pivot Higher is our Hand. As of this morning, the S&P 500 sits around 2,900. The market pulled back sharply to about 2,855, 2,875 earlier this week on the batch of weaker economic data in the dead zone of the third quarter and early fourth quarter.

The timing and level on the S&P 500 pulling back in the late third quarter have been highlighted all year by the team at Oak Harvest. We first laid this out in early January of this year and once again, during the second half outlook that we penned in late June. Year to date, this is a very normal year in an ongoing 10-year bull market. That being said, we expect the rest of the year to be normal as well. By normal we mean that we expect third-quarter earnings to be generally disappointing and analysts to express generally negative comments, but this is the good normal.

We believe that after 20 to 21 months of estimate cuts, this data is now factored into the overall markets. The markets basically peaked with the S&P 500 at 2,875 in February of 2018, over 20 months ago, on the positive effect and optimism of the Trump tax cuts. This was the time period of peaks earnings revisions up, peak analysts target revisions higher, and peak money flows into the stock market.

Wall Street analyst’s targets and earnings estimates were being ratcheted up at an optimistic 10% to 15% year over year. We now sit at basically the same exact level 2,875, 2,900 a year and a half later, and almost all analysts are now negative.

Most analysts are now cutting both earnings estimates and stock targets at the exact opposite rate as the top of February 2018. The team at Oak Harvest believes that they are very late to the party on these moves. Stocks historically peak on peak optimism and maximum earnings momentum revisions up. That was January of 2018, not now. Stocks trough on peak pessimism and maximum estimate cuts. That should be right here right now. Contrary to most market watchers, as we have said all year since early January, and again in June, we see a normal fourth-quarter rally in stocks.

We do not see a repeat of last year’s fourth quarter sell-off. We continue to see much higher into year-end and new all-time highs in the market sooner rather than later. These new all-time highs should finally be sustained this time. Returns of up to 78% are now possible to about 3,150 on the S&P 500 near year-end and even 3,200 into early January. Particularly, if there’s any trade deal with China in the next two to four weeks.

The Federal Reserve is on the investor side this year versus last year when they were raising rates. Volatility should now head lower not higher throughout the fourth quarter. The dead zone of the third quarter is ending over the next two weeks and stock buybacks will return to the market. We are currently seeing green shoots in the housing market as low rates are already stimulating housing and construction for the fourth quarter of this year in 2020.

We saw that in Lennar’s earnings earlier in the week, we expect similar results from Home Depot and some others in the next couple of weeks. Apple’s new iPhone launch the 11 is meeting better than expected demand. In fact, Apple just raised its production forecast this morning by about 10%. Future demand in the semiconductor markets looks better as demand should exceed supply in 2020 and help support pricing across the industry.

I want to impress upon our listeners once again, that what has happened this year is normal during the summer in an ongoing bull market. We continue to see a year-in move in the S&P 500 to new all-time highs that are sustained into year-end and even higher in 2020. If you find this content helpful, forward it to friends and have them give us a call at 281-822-1350. Please 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 1: 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 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.