Financial News: Fact or Fiction, Truth vs. Opinion

Join Chris Perras for a discussion of the nature of the financial news media and how it can impact investors.

Chris Perras: Hi, I’m Chris Perras. Good morning. I’m the Chief Investment Officer here at Oak Harvest Financial Group in Houston, Texas. Welcome to the November 8th edition for a weekly Stock Talk Podcast: Keeping You Connected To Your Money. Now, sitting at 3,085 in the S&P 500, this podcast is entitled financial news, fact or fiction, truths verse opinions.

As of this morning, the S&P 500 sits almost exactly at 3,085. We have rallied almost exactly 200 points from the October 2nd pivot at 2,885 in the span of about four weeks. The normalcy of this rally continues as the team at Oak Harvest first laid out way back in June of this year in our second half outlook. We are at the end of the third-quarter earnings reports, and it has been a better than expected third quarter in earnings.

This morning, Disney reported a great quarter and the stock is up almost 6%. We have passed the final fiscal year-end for most big hedge funds and mutual funds two weeks ago, and they are no longer focused on trading around tax positions. They are now free to look forward to a new fiscal year and to the prospects for their portfolios for 2020. They get back to playing offense.

The China trade deal and negotiations are going better and are helping year-end sentiment. The path of the broad market should overall remain trending up through early February of 2020 albeit at a much slower rate than the past four weeks. There was likely at most, one small pullback left on a percentage basis this year. If this pullback is to transpire, it should happen from here or slightly, higher levels and be around 2%.

If this is to happen, its likely timing is to be the second half of November as the remaining sellers try to make some tax loss sales before early December to avoid a 30-day wash sale rule at the end of 2019. On to the topic of the day, financial news, fact or fiction truth versus opinion. Our main job here as advisers at Oak Harvest is to help our clients set out an investment plan to navigate retirement.

The hardest part of this job might be managing the emotions of our clients. Besides dealing with the normal market volatility, the job of emotion management is made increasingly difficult by the 24-hour financial news cycle. Go ahead and turn on CNBC or Bloomberg News, Fox Business news, and you have immediate “news”, and I use this term very lightly.

Are you really getting financial and business news on these channels anymore? Are you really getting help managing your money or investments, or are you getting 99% opinion that, while interesting and entertaining, are almost irrelevant to you and your money? Take, for example, please explain to me what Bill Gates’ opinion on a proposed Elizabeth Warren wealth tax has to do with you and your money?

What does it have to do with running a business? If you turned on CNBC this week, you would have sworn that this was probably the biggest news event and most important financial story of the week. Why do I say that? Because this interview was run 5 to 10 times a day for three days. I ask you, is this a financial news story? In this portfolio manager’s opinion, there is nothing this story does for anyone except, sell advertising time.

Here’s another one that happened again this week, that often referenced hedge fund billionaire was out again this week pontificating how, once again, it’s just like the 1930s and this time, capitalism is failing society. Is this financial news? Of course, it isn’t. Is this an opinion of a very well-respected man in the financial world? Yes, it is, but please explain to me why do you, as a listener, care? Most likely, he doesn’t manage money for you.

He didn’t say one thing about how he was changing his portfolios based on this theory of it being 1930s. 99% of what is being passed off as financial news on TV nowadays is nothing more than opinion. Okay, Chris, if you’re so smart, tell me, what is a financial fact? In my opinion, financial facts are things like earnings, conference calls, and management interviews.

They are data found real-time in the markets, whether it’s the currency markets, the energy markets, the volatility markets, or the interest rate markets. They are not investor surveys. They are not political opinions. They are not economist views. They are not the opinions from a political appointee, who are as far removed from our money as your disinherited 10th cousin.

These are opinions and views, and while they are interesting and possibly good for TV ratings, they should have zero relevance in making your financial decisions. What do we look at here at Oak Harvest? Well, there are pieces of data that one can see in real-time and interpret in real-time to help predict the outcome to varied types of financial assets. These are things like interest rates, which clearly troughed mid-August, and it has since been trending higher.

What does this mean to an investor? This fact remains that banks and financial institutions make more money. This fact means they earn a higher marginal return on their capital. This is good for both their earnings and their valuations, and bank stocks outperform when this happens. This also means that industrial stocks outperform because either the economy is getting better, or inflation is picking up, or both.

This is a good thing for capital spending. This also means that smaller capitalization stocks usually outperform as they tend to have faster, but albeit more volatile growth trajectories that investors don’t mind undertaking when the economy is improving.

Another fact-based investment phenomenon that has helped Oak Harvest navigate 2019, is that when the Federal Reserve is easing monetary policy, volatility trends in the market come down over 12 to 18 months. This lower volatility leads to higher valuations and a higher evaluation expansion and provides a floor under equities, and a floor under other financial assets.

The year of 2019, which almost everyone I’ve heard on TV declare a volatile year, has been 100% normal for a Federal Reserve easing cycle. Since January 4th, when the Federal Reserve first admitted its interest rate mistake, volatility, as measured by the imperfect VIX Index, has dropped from 26 to 12.5. The team at Oak Harvest use this normal trend and normal summer seasonality to position clients’ portfolios for playing offense for this very normal fourth-quarter rally that we are now in.

We continue to see a generally low level of volatility into the mid-first quarter. As I’ve said, for the past five to six podcasts, year-to-date, this is a very normal year in an ongoing 10-year bull market. If your investment advisor liquidated your holdings in mid-December of 2018 on the way down, because he saw something “bad” coming, only to then four months later say, things were starting to look better after the market was already up 10% from where he sold it, give us a call.

If your advisor stopped buying stocks for you this summer because he was concerned about all those economic signals he was getting only to recently say, “Hey, the clouds are clearing and now we’re buying stocks again,” after we’ve already rallied 10% in three months, please give us a call. We have managed billions of dollars through multiple economic cycles, and we have the experience and tools to help navigate you and your portfolio in a systematic manner, that isn’t selling fear and buying greed.

If you find this content helpful, please forward it to friends and have them give us a call at 281-822-1350. Browse our 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, Chief Investment Officer at Oak Harvest.

Speaker: 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.