H1 2021 Outlook: Ain’t Seen Nothing, Yet
Join Chris Perras for the 12/18/2020 edition of Stock Talk!
Chris Perras: Good morning. I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group in Houston, Texas. Welcome to our weekly Stock Talk Podcast: Keeping you connected to your money. This week’s podcast is going to be the short-form version of our first half 2021 outlook. I’m naming this abbreviated podcast after the 1974 Bachman- Turner Overdrive song, You Ain’t Seen Nothing Yet.
As of this morning, we sit around 3720 on the S&P 500. It’s another new all-time high. Wall Street strategists are laying out their lists for 2021 in what they think happens in both the economy and the stock markets, and this is our abbreviated version of that. We’ll be giving you more detail over the coming weeks. We previously mentioned way, way, way back in January of 2020, what we thought would happen in the fourth quarter of this year and into the first quarter of 2021. I tried to get a few unknown indicators that I look at in the options, and futures, and volatility markets, and I try to triangulate both price and time at certain levels.
Almost a year ago, we first previewed our thoughts on early 2021, and my views haven’t changed. The path, for sure, was different because of the COVID lockdowns. It took about three weeks, but we continue to see a move in the first quarter of 2021 above 4000 on the S&P 500. If pressed, my work shows a move above 4050 into late January and early February is possible. This current move up started on October 28th or 30th before the election. They tend to last almost exactly three months. Then they almost always end moving up exponentially over the last three or four weeks, which would be in January if things hold.
These moves are almost always led by existing year’s leadership. This year, it was stay at home stocks and growth at any price stocks that are leading into year end. Why? Because the inflation component of interest rates started reaccelerating back then. At the same time, the real growth component of interest rates peaked and rolled over.
This acceleration up move in stocks in January could be caused by a combination of the following, and this is just a little list. Number one, large flows into stock markets, chasing the 2020 gains. This is what people call FOMO, fear of missing out. Number two, the added fiscal stimulus checks should be finding their way into the stock markets with the millennial effect by the first quarter of next year. Three, a great fourth-quarter earnings release season in January should hit. Finally, a return to stock buybacks and the blackout window ends in January. However, and this is a big if and however, should this acceleration up move toward 4000 to 4050 occur, we would expect the chances of a very rapid correction of say, 10.5% to 12% down, back to the level of 3550,3650 over only three or four weeks in February-March to happen.
The net of those two moves would feel pretty bad, but it would leave us pretty much flat with Thanksgiving a few weeks ago. Why could we round trip back down to these levels? Man, I can’t give an exact reason, but a few of the likely pressures would be difficult earnings comps for the first quarter, double ordering causing inventory builds in the first quarter, a second rush of IPO money, raising and the siphoning of liquidity out of large-cap tech stocks, concerns over government actions against large-cap technology companies, investors booking long-term gains from buying during the COVID collapse in March of 2020, or large amounts of insider selling and technology stocks, maybe there’s some more COVID case spikes, maybe there’s a vaccine disappointment from J&J, hedge funds being offsides on the wrong side of trades.
Probably the most likely one would be a rapid reallocation of money out of the bond markets caused by a short-term spike in interest rates say, to 1.25%. That would cause a rapid rebalancing by algorithmic and quantitative traders and hedge funds. Should that correction happen in mid-first quarter, as the title of our podcast says, you ain’t seen nothing yet. Our current year end 2021 upside stands at 4600, and numbers well above that are possible if things get silly.
Over the next few weeks, I’ll be providing some charts, tables, and supporting data to back up our triangulation of the first half of 2021, as well as a glimpse at the rest of 2021, in the second half. The team at Oak Harvest messaged 2021, we expected a strong pre-election fourth quarter and early 2021 run in the markets and the economy because the Federal Reserve was providing ample monetary policy and liquidity to the financial markets. At the same time, we had faith in the scientific community’s ability to figure out the virus in a timely manner.
On May 8th, long before the mainstream media was discussing it, we aired our weekly podcast entitled, The Robin Hood Rally and teased optimistic outcomes. At that time, the S&P 500 stood at 2900, and TV news channels were filled with nonstop talks of stocks being overvalued, the S&P was due to retest its March lows at 2200, and all sorts of other nonsense. They were busy talking of historic times, calling for replays of the Great Depression and replays are the Spanish Flu of 1918. In subsequent podcasts, we laid out our case for a strong fourth-quarter rally that would advance in front of the election, not after, and could carry the market to 3800 by year-end and 4000 at the early first quarter of 2021.
What was the team at Oak Harvest doing? We were using data, not emotion or nebulous arguments to help guide our decisions. The Oak Harvest, the investment team, by way of our weekly podcast and emails, was trying to keep you ahead of the curve. We’re trying to help you see what might be around the corner before others do or give you some answers to questions even before they’re asked. Admittingly, we can’t see a global virus before it happens, but hopefully, we can educate you in advance of what you might hear on TV and the news networks, the financial shows, or your social network feed. We are in a bull market, one that should be reaccelerating up. At Oak Harvest, we are comprehensive long-term financial planners.
If you found this podcast helpful, please forward it to a friend or have them give us a call at 281-822-1350. We’re here to help you on your financial journey in retirement through customized retirement planning. Take care Have a great weekend. Many blessings.
Ad: 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.
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.