July 4th – Where We Stand United After The First Half Rally

For the last few weeks, with the markets having rallied almost exactly 8 months off the October 2022 lows, we’ve discussed our view that with FOMO, the fear of missing out setting in June, it was our teams view that it was finally time for the markets to top out for summer. 2 weeks ago our video title was “SP500, It’s summer time for a rest”, and last week it was on the topic of “FOMO and the Wrong way to Invest”.  Investors, it’s summer. The markets have rallied for exactly 8 months off the early 4th qtr 2022 lows, it’s time for markets to rest and pullback. Nothing disastrous, but then again not an enjoyable time to come if you are watching your statements daily, marking your net worth to market every day, which is a bad habit and will only lead to poor investment returns and anxiety.

This week’s content, titled “July 4th weekend, where we stand”, is just some additional detail into our thoughts from here for the next few months. Before we get into the content, please take a moment to click on both the subscribe and notification bells so you will be alerted when our investment team uploads our latest content.  Or better yet, give our OHFG team a call at ———— to speak to our team and set up an initial consultation with an OHFG advisor to discuss your personal financial situation.

Frequent viewers of our content know that our team was quite bullish on the first half of 2023 heading into the year in spite of the ongoing, almost nonstop, negative rhetoric on TV and in the financial press. Our 1st half outlook, penned in December 2022, titled “The Old Normal” had an S&P forecast of 4300 on the cash SP500 when the markets were trading around 3800. Think way back to 4th quarter of 2022.  Here’s a monthly chart of the SP500 to visually jog your memory of where we were and how far we’ve come the last 8 months.

chart 1 6.26.2023

Recall back in October, that last circle and arrow on that chart, almost all the news was negative on inflation, the economy, and the news channels.  The prevailing story being circulated by many retired billionaire hedge fund managers, one-hit wonder portfolio managers, economists, and newsletter writers was a crash like the dot.com bubble or GFC crash was forthcoming coming.  Some predicted it to start almost to the week and day of the markets lows last year. Here is the weekly chart of the S&P 500.

chart 2 6-30-2023

The dark highlighted circle was the same October lows last year. For better than 6 months, we heard from many strategists and chartists on TV that we would “retest” those October lows shortly, or even make new lows and that the markets were overvalued.  Well, that did not happen.  And if you were listening to them, you are either still waiting for the all clear, or now you are hearing them turn more bullish up 800 points in 8 months because their “charts” have turned up in a prettier picture. Here’s that prettier picture of the daily chart of the S&P 500 that they are now referencing.

chart 3 6-30-2023

They now reference the very obvious higher lows and higher highs we have made since we cleared their “resistance area” of around 4200. Even retired billionaire hedge fund managers like Ray Dalio seem to have thrown in the towel and now deemed it ok to “buy stocks”.  This is the same legendary investor who on 10/3/22 deemed “cash is not trash” within a week of the stock markets 2022 lows when you should have been buying stocks.  On June 12th, so far only 2 days in front of the markets short term top, declared its time to “buy stocks”.  Investors, please tune out this “news” when it’s presented as such on TV or in financial newsletters.  Retired billionaire hedge fund managers know nothing about your personal financial situation or your financial plan.

So, the big question on everyone’s mind is now what?  First, it’s summer!  Historically, our economy slows down in summer as consumers and businesses take a break from their normal activities. The economic data is showing this currently on lower than “expected” PMI’s, purchasing manager’s intentions.  With this economic slowdown usually comes a stock market downturn, particularly when central bankers are upping their interest rate increase rhetoric.

With the markets up on a spike, and volatility having crashed, as we expected, expect traders to sell and investors who bought near the June 2022 lows to trim some winners and lock in long term capital gains.

Please try to not be swayed by the likes of Ray Dalio or sell-side strategists, many who have now lifted their yearend 2023 S&P500 targets by 300-500 points given the markets move higher. Relax.  The markets should pull back and digest its year-to-date gains over the next 2 to 4 months. It’s summertime and time for markets to rest.

Well, more often than not, the markets take 2 to 4 months to digest gains like we’ve had since last October. Not days or weeks. But months.  It would be very normal to see a 4-5% move down over the next 2 months followed by another 2 months of bouncing around.  This move lower has most likely already begun.  Call it -200 to -250 points down in the S&P500. This would take the markets back to where they were just in late April. S&P500 4200-4175.  This level also happens to be where the “Powell Puke” in August of 2022 happened.  You can see all these levels on the charts earlier in my video.

The cost of insuring your portfolio has collapsed as we had expected.  Here’s a chart of the forward vocality futures.  We are at the bottom of the downward channel.  If I was back running a hedge fund, I would be hedged up, long lots of cash, doing research for the next few months, while I sorted through names and ideas that I wanted to buy later in the summer or early fall for the 4th quarter of 2023 and first half of 2024.

chart 4 6-30-2023

Investors, while we are expecting a few months of down and back and forth, we are not expecting a disaster as many have preached for the last 12 to 18 months.  Per, Merrill Lynch, statistically speaking, the S&P500 entered its 27th bull market of 20% or more on June 8th. If you missed the 8-month rally, should you panic right now and buy stocks getting 100% invested? Should you make big bullish changes to your investment allocation? No!

However, yes, the data is promising for the next 12 months.  Going back to 1929, cyclical bull markets like this one have lasted 33.6 months on average (17.4 median) with an average return 114.4% (76.7% median). The year after the S&P500 enters a cyclical bull market shows the index higher 65% of the time, with an average return of 9.4% and a median return of 14.1%. These returns would equate to 4700 on the S&p500 and maybe even 4900, into June 2024.  FWIW, my model has the S&P500 returning to level 4700 later this year after a summer stall sell-off and stall.  As for 2024?  I do not know yet.  I can come up with even much higher bullish outcomes than 4900 as well as wildly bearish lower levels.  Let’s see what the rest of 2023 holds first.

It’s summertime and time for markets to rest.

So for those of you who have made it through this video, that’s a sneak peak of what our team thinks might be instore for the rest of 2023. For now, we are thinking down back to 4200 or slightly lower over the next two months into mid-August, bouncing around into late 3rd quarter and then a strong year end rally back toward, but just short of ATH’s for the overall S&P500.

Viewers, while summer is a normal time for investors to get away from their screens and focus their attention on family and fun, I would suggest you take the recent runup in the markets and crash in volatility to get on the phone and give us a call at OHFG.  Set up an initial consultation with an OHFG advisor or if you’re an existing client, schedule a review of your financial plan, goals and objectives, and your asset allocation.

Now is the time to review your goals and objectives, not when things are whipping back and forth, up, and down quickly in the markets. If you are having the thoughts “I need more growth in my portfolio, or I need more income”, making those asset allocation actions are best done when the markets are calm.  But investors remember, there are no guarantees in the markets.  You can’t just turn on more growth or more income in the stock markets. That’s not the way they work. The exact path forward is always uncertain and making asset allocation decisions in your portfolio, be it stock and bond mix or equity style changes, are best made when markets are calm, and emotions are running low. Making emotional decisions when markets are volatile and we are feeling highs and lows as an investor, is the wrong way to invest in my book.

At Oak Harvest, we have many tools that our advisors use to help our clients meet their retirement goals and objectives. These tools are both market based and insurance based, that we can use to meet your retirement goals. The future and stock markets are always uncertain and that is why our retirement planning teams plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at 877-896-0040 and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.