Thanksgiving in the Markets — It’s Digestion, not Indigestion — so Let’s Give Thanks

On this week’s  pre-Thanksgiving episode of Stock Talk, join CIO Chris Perras as he gives a market update, talks about what a “Santa Claus Rally” might really look like, and then discusses what he and the team at Oak Harvest are thankful for in the markets in 2019.

Chris Perras: My name is Chris Perras. I’m Chief Investment Officer here at Oak Harvest Financial Group in Houston, Texas. I apologize if I sound a little strange this morning, I had a head cold. Welcome to our November 21st edition of our weekly Stock Talk Podcast: Keeping You Connected To Your Money. Sitting here near 3,100 on the S&P 500, this podcast is entitled Thanksgiving in the Markets, It’s Digestion, Not Indigestion, and Let’s Give Thanks.

As of this morning, the S&P 500 sits almost exactly at 3,100. We have rallied almost exactly 225 points from the October 2nd through 4th pivot at 2,885 in the span of about six weeks. As we laid out a few weeks ago, the team at Oak Harvest expects two to four weeks of up and down trading in the overall market in a very narrow range now. This is the normal second half of November digestion period.

We do not expect the next three to four weeks to be a period of Thanksgiving indigestion. Most of the financial media is now calling for a Santa Claus rally or a strong seasonal upturn in the markets from here. This is of course after the exact same people who waited over 200 S&P 500 points said it’s okay to buy. They waited out the rally and now they’re saying go ahead and buy. After being late to the fourth-quarter rally, it’s not surprising these same individuals have failed to tell their viewers that a normal fourth quarter rally has a late November pullback of up to 2%, which, in my view, is untradeable and another few weeks of choppy up and down trading into mid-December.

In years like this, 2019, when the Federal Reserve is easing as they started way back on January 4th, the Santa Claus rally usually occurs over only about four days in or around Christmas, and then a touch more near new year’s. Why is this the normal trading pattern? Well, first off, the week of Thanksgiving brings with it almost no liquidity as a lot of people are on vacation, at the same time that it’s really the last period for selling for tax purposes for big financial players. Secondly the first half of December brings with it the onset of peak in quarterly stock buy backs for the fourth quarter and the onset of the dead zone period. Fewer companies are out there buying back their stock. This reduces the demand for equities.

Onto our topic for this week, I want to use this pre-Thanksgiving week podcast to give thanks. First and foremost, thank you to all our Oak Harvest clients for entrusting us to help you manage your financial future. We take this task both seriously and humbly. Secondly, thank you, Jerome Powell and the Federal Reserve for on January 4th earlier this year seeing the error of your ways and setting out on an easing monetary policy.

This has sent the stock markets on a course for most of the year that is as normal as it has been for five years due to lower volatility and an overall stock market that’s not fighting the Fed. Finally, I’m going to give thanks and props and blessings to two individuals and their firms that have been in the financial press this year with the correct economic and stock market outlook. What do these two people have in common? Well, neither of them run hedge funds. Neither of them are billionaires. You know what? Neither of them are academics either, and ye,s neither of them are athletes that or film stars. At least they’re not film stars yet.

First is Terry Dwyer of Canaccord Genuity. Terry is a strategist who has seen many cycles and who correctly got the twists and turns right this year. Why? Because Terry has one rule, his number one rule. What’s that rule? It’s don’t fight the Fed. Does that sound vaguely familiar? Yes, I thought so. We have been saying the same thing all year. Like the team at Oak Harvest at the beginning of October, Terry was out in the media telling investors to “ignore the manufacturing data weakness” and play offense, not defense on the stock market. This was literally the pivot in the overall stock market up after 20 months of sideways. More importantly it’s when value stocks and cyclical stocks started outperforming

The second individual who’s had a great handle on 2019 is the chief market technician at a company called Fundstrat. His name is Rob Sluymer. Rob was also on CNBC on October 3rd in the midst of all the daily news and concerns over Brexit, China tariffs, and presidential tweets. He essentially said please tune it all out, we are in a secular bull market that has paused for about 20 months and it’s about to reaccelerate, and do you know what? Rob couldn’t have been more right to the day and hour.

What do these two individuals have in common? Well, they both have been through multiple economic and stock market cycles. They both understand that while history doesn’t repeat itself exactly, economic cycles and human behavior do tend to repeat and they do tend to rhyme. What else do the two have in common? Well, they trusted their database methodologies. While the news media was trying to bombard and excite their listeners and investors with hourly, daily, and weekly news events, these two were out being patient and were sticking with their data, process, and systems.

Each news story or opinion story is not new critical information needed to make a new financial decision. Today, we saw another breaking news story in the financial press about how that same often mentioned billionaire hedge fund manager just bought, get this, one to one and a half billion dollars in puts on the overall market over the past few months. Man, that’s a lot of money. Man, that is also a great headline and a great attention grabber, and yes, I read the article.

After I read the article, what exactly did I do differently? I did nothing. Absolutely nothing. Why? Because when you read that article and synthesize its information there is nothing to do. There is zero reason for 99.9% of people to see any of the information in that article as market news. This man runs a $150 billion hedge fund with a B. His job is to protect client money in ups and down markets. He just spent one half to 1% of his assets to buy insurance for his investors.

Was it the right decision for his investors? We won’t know that fully until around March of next year but what I can tell you is since he started initiating this position two months ago he’s already lost a lot of money.

Why? He’s betting on higher volatility and volatility has only declined since he started taking this position. The team at Oak Harvest laid this out early in the year. We expect volatility to stay at a normal Federal Reserve induced low level through February or March of 2020. In fact, volatility overall is likely to continue to go lower than people think in the first quarter, not higher. Thank you very much, Jerome Powell and the Federal Reserve.

Please give us a call. If your advisor stopped buying stocks for you this summer because he was concerned about the economic signals only to recently say the clouds are clearing and I’m in buying stocks for you again after the market has rallied 10% in three months, or they’re saying we’re buying stocks now for that Santa Claus rally, please give us a call at 281-822-1350.

Selling fear and buying greed is not a systematic investment plan. The team at Oak Harvest wants to help you navigate your retirement. We want to help you manage your emotions around your savings and we want to make sure that you only have to retire once in your life with a customized retirement planning. Many blessings and happy Thanksgiving. This is Chris Perras, Chief Investment Officer at Oak Harvest.

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 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.