Waiting: Looking Forward

Join Senior Portfolio Manager James McFarland for the 10/16/2020 edition of Stock Talk!

James: Hey everyone, this is James McFarland, senior portfolio manager and investment specialist at Oak Harvest Financial Group. Welcome to the October 16th edition of Stock Talk: Keeping You Connected To Your Money. I’m recording this on 10/16/2020 at 9:30 am Central time. The S&P currently trades at about 3506. The S&P opened Monday at 3524 and proceeded to trade down over Tuesday, Wednesday, and Thursday, reaching the low of about 3431 on Thursday.

After reaching that low, the market immediately bounced to close Thursday at 3475 and is trading higher again today. That means the market is trading down just about point 0.7%, from Monday’s open as of the time of recording. The action this week is right in line with my expectations. As you probably know, we’ve been expecting to see a pullback in the broader market since August or so. We expected that pullback to materialize in September and last through mid-October.

We’ve since seen that pullback happen and the market again starting to turn up. This week is notable to me since when the S&P bounced on Thursday, it bounced at almost exactly the price point I’d been expecting it to do so. If that price level had failed, and the S&P continue downwards, I’d be more inclined to see more sharp short-term moves to the downside in the near term.

However, as this week has played out, I think we’re more likely now to see more upwards action and some sideways chop headed into the election. The election, of course, is still the foremost event on people’s minds, which is entirely understandable. We will all find out what happens in just a few weeks in that regard. I’ll just remind everyone that we will be closely monitoring the results and making portfolio adjustments as needed based on the outcomes.

At the highest level, we remain very bullish heading into 2021 regardless of the election outcome. As you’ve heard Chris Paris discuss for a number of weeks now, the market environment particularly with a very accommodative Federal Reserve Board is primed to continue this new bull market well into the end of 2020 and into 2021. However, it’s also likely that the parts of the economy that benefit under one administration may be less likely to benefit under another administration.

That’s also very true. It’s pretty clear now that we are going to see very different policy initiatives depending on which administration is in power. Those policy initiatives will likely be beneficial for parts of the economy and detrimental for other parts of the economy. We will be evaluating which industry sectors and companies we feel have more potential over the next few years, in the post-election environment.

Our basic process and philosophy remain the same. We seek to invest in companies that have growth potential, a good business, good management, and a good outlook over the next several years so that we can construct well-diversified portfolios for all of our clients. Now speaking again, about the fourth quarter of 2020. I’d like to bring up just a couple of points that I think further strengthen the general bullish case.

The first is seasonality. We are in the midst of transitioning from the weakest stretch of the year to the strongest stretch of the year for the stock market, which sets up higher moves in the stock market. This is when the normal summer slowdown in the economy comes to an end and we begin to see increases in productive economic activity.

For an example, just think how much retail shopping activity there is heading into Christmas, and then consider how much manufacturing has to support all that shopping, and how much business online shops now do and how much distribution and transportation there has to be to get all the resulting deliveries made on time. These are all things that can support the stock market and potentially drive it higher.

Next, a note on the positioning. Well, positioning means how much money investors have invested into the stock market versus other markets like bonds, or how much money they have in cash. Positioning in the stock market is much lighter now than it was in August. That makes sense considering the 10% sell-off in September, while we also head into the election and there are still remaining concerns and uncertainties about the Coronavirus.

This is a positive development because that’s a lot of dry powder that’s ready to be invested. When combined with other positive catalysts like the seasonality I’ve just discussed, it could lead to significant inflows into the market, which again, can drive further upward momentum. As always, nothing is set in stone, things can happen that can derail a bullish case.

We remain flexible because of that. If the market situation looks like it’s changing, then we will be changing right along with it. Staying flexible is just part of being in the capital markets. However, with that said, As it stands, I think there is plenty of reason to be optimistic heading into the fourth quarter and into the new year. That will bring us to the end of today’s edition of Stock Talk. Thank you so much for joining me.

If you enjoyed the show, please share it around. As always, I encourage you to stay safe, stay positive and remember your investment and financial plan. If you have any questions or would like to find out if we can help you with your portfolio, just give us a call. Our number is 281-822-1350. Once again, this has been James McFarland, this has been Stock Talk, have a wonderful weekend. I’ll talk to you again soon.

Speaker 2: 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.