Pivoting Higher: Bear Trap Snapped Shut on Shorts
CIO Chris Perras discusses Oak Harvest’s views on the latest market happenings, and covers why 2019 has been a normal year in a bull market, and why the firm remains optimistic as we enter Q4, 2019.
Chris: Good morning. My name is Chris Parris. I’m Chief Investment Officer at Oak Harvest Financial Group here in Houston, Texas, and welcome to the October 11th edition of our weekly Stock Talk Podcast, Keeping You Connected To Your Money. I bring to you the second of our fourth quarter podcast for 2019 and it’s another optimistic one titled, Pivoting Higher. A bear trap snaps shut on the shorts.
As of this morning, the S&P 500 sits around 2950. The market has experienced high short-term volatility this week on the back of the Daily News reports on the ongoing China trade negotiations. The financial press has been out in mass the last week calling for bear markets, head, shoulder to tops, and 10 to 20% sell-offs. All of these calls on the S&P 500 have come near 2850 to 2900 on the S&P while the markets were already down and already going sideways for 20 to 21 months.
This is where the bears sit, and this is most likely where the bears are trapped. Higher short-term volatility is 100% normal. It pivots higher in the stock market. Think all the way back to the week of the election in November of 2016. The timing and the level on the S&P 500 pivoting this year right now higher, is almost exactly when and where we first laid out in early January of this year, and once again, during our second half outlook penned in late June.
We are now exiting the dead zone. We’re heading into the third-quarter earnings reporting period. The team here at Oak Harvest isn’t expecting heroically positive results for most companies, and commentary for most management teams will undoubtedly be very cautious. Why? Because it was a normal slow summer and the economy has been slowing for six quarters.
However, stock buybacks start returning to the market later next week, and they ramp through Thanksgiving and this should be supportive of stock prices. Year to date, this is a very normal year in the ongoing 10-year bull market. We repeat, this year is playing out almost exactly as 2016 did down to the exact same worries focused on in the financial press. Those worries have been an earnings slowdown, a global recession coming. Concerns over a Brexit. Concerns over a china slowdown and ongoing high political concerns.
Investors are worried about a fourth-quarter replay of 2018 when the stock market’s dropped almost 20% in three months. We repeat as we have all year, this is highly unlikely. Why? Because in 2018, the Federal Reserve was tightening monetary policy and went too far. Since January 4th of this year, the Federal Reserve has expressed the desire to ease monetary conditions.
They will cut rates again in late October. Just last week, Chairman Powell expressed that the Federal Reserve has a desire to provide additional liquidity in short-term funding markets through January of 2020. The Fed is doing this to prevent the normal slowdown in year-in liquidity and to make sure that the funding markets remain liquid this year. The Bears in many hedge funds are calling this QE four and trying to make it out like it’s bad news.
You can call it what you want but easing is easing and the result will be lower not higher stock market volatility through January. We’re likely to see a normal fourth quarter rally in stocks and not a repeat of last year’s fourth quarter. We continue to see much higher stock prices into year-end and new all-time highs sooner rather than later. These new all-time highs should be sustained this time.
The Federal Reserve is on investors’ side this year. Under this scenario, the groups to be invested in aren’t the safety trades that most investors have been hiding in. People have been hiding in utilities, staples, and real estate since the big down move in the fourth quarter of last year. After 20 to 21 months of a market that has gone absolutely nowhere when the Fed eases monetary policy, when volatility is high and peaking, and when expectations and the economy looks set to bottom, what do you do as an investor?
You play offense. You don’t play defense. Apple’s new iPhone launches meeting better demand than expected and future demand in semiconductor markets looks better as demand should exceed its supply in 2020 and help support pricing across the industry. Apple is the largest market cap stock in the world. Its stock is nearing a new all-time high and looking to break out after going nowhere for 15 months.
This is the bear market? Doubtful. I want to impress upon our listeners once again, that what has happened all year is normal during the summer in an ongoing bull market. We continue to see your end move in the S&P 500 to new all-time highs that are sustained this year into year-end and even higher in 2020. That being said, I want to preview our topic for next week’s podcast, and this is assuming, nothing extraordinary happens in the next six days in the market.
Next week’s podcast is going to be a piece on the asset class of small-capitalization stocks. We will cover why investors should own some of this asset category for the long term. We’ll address, why has small-cap assets lagged the overall market the last 18 months, as well as, much of the last 10-year bull market. We will provide some statistics showing the opportunity in this asset class that exists over the next part of this investing cycle.
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. Many blessings. This is Chris Parris.
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 and 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.
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.