2021 2nd Half Outlook: Let the Good Times Roll
The Bull Market marches on in the second half of 2021. Why? When? How high is possible? What sectors lead? Join Oak Harvest’s weekly podcast to hear our view of what’s ahead in the 2nd half of 2021.
Chris Perras: Hey, happy Friday. I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group. We’re an investment management and financial advisor in Houston, Texas. Welcome to our June 18th Stock Talk Podcast: Keeping You Connected to Your Money. I’m going to keep this week’s podcast short and sweet. It’s a super abbreviated version or second half, 2021 outlook that Troy and I will be releasing shortly by way of a YouTube video. It’s titled Let the Good Times Roll after the hit by the band, the Cars. The investment team has been previewing for weeks, but apparently, others are just now seeing a peak in inflation expectations and a trough in real economic growth.
If you want to point to an exact date, look at any stock chart since May 10th or 12th when the yield curve, which peaked way back in mid-March, finally broke down since May the 10th to 12th, what has led the market to all-time highs the past five weeks? Yes, FANG stocks, growth at any price stocks, secular growth stocks have started trouncing value, cyclicals, and commodities. We previewed the top and copper. We previewed lumber being cut, scrap steel melting, and agricultural commodities getting plowed under weeks ago when the real-time warning signals said, and I quote from the movie Trading Places, “Sell, Mortimer! Sell!”
Where do we sit now and what is our outlook for the second half? Make no bones about it. We’re in a bull market. While very short-term indicators continue to point to some short-term risk of a minor pullback. This would be very normal. By pullback, we are not talking about those nebulous 10 to 20% correction calls that other firms throw around, but rather something in the 5% to 6% range, if you are lucky enough or good enough to pick the exact top and bottom.
Even if reopening growth is peaking along with inflation expectations, as Goldman Sachs points out, since 1962 when core inflation as measured by the CPI data was high and falling, much like it has started to the past few weeks, the average market annualized return was a positive 15%. Yes, you heard that right. A positive 15%, contrary to the alarmist headlines on CNBC or other networks.
For the past three to four months, almost everyone on TV has been parroting the exact same sector allocation theory, those being long value over growth, small-cap over large, international over domestic. Once again, it’s looking like conventional wisdom was exactly wrong in an extreme once again. We’ve discussed historical analogies for this year for about 12 months now, with the two years most similar in timing this cycle being 2013 and 2017, both of which ended up being up almost 38% trough to peak from their prior elections of 2012 and 2016, and due to their peaks in the first quarter, 15 months later in the first quarter of 2014 and the first quarter of 2018.
Right now the model of 2013, President Obama round two, continues to be eerily similar. It’s almost the exact same pattern, whether it’s commodity moves, interest rate moves, inflation moves, real growth moves, and sector rotations in the equity markets. Maybe this makes a lot of sense due to the Federal Reserve’s fiscal support being like early QE programs under President Obama, as well as the current gridlock in Congress that President Biden is now experiencing in his first term.
On the upside, we continue to see very strong second-half stock returns, hence our title taken from the Cars’ classic, Let the Good Times Roll. By strong, we mean a summer rally target of around 4,400. This advance is likely in mid third quarter on the S&P 500 post-second-quarter earnings reports as companies buy back stock and investors become increasingly certain that Federal Reserve Jerome Powell will continue to make all the right moves. We’re in a bull market, and contrary to other calls of unprecedented times, this bull market, outside of the speed of its recovery in the second through fourth quarter of last year, sits at just over average, as far as returns go.
It’s summer and as far as the team at Oak Harvest is concerned, so far, it’s a very normal one at that. The Oak Harvest projection for where the S&P 500 closes the year-end 2021 and early 2022 on the S&P 500 has not changed. It remains well over 4600. This is not a stretch by historical standards. Far from unprecedented, our targets on the overall market are merely within the statistical average bull market.
It also happens to be around the same 38% total return experience post-2012 and 2016 presidential elections over the next 15 months. More on the data in future podcasts. However, the forward options market [unintelligible 00:05:31] S&P 500 target closer to 4,800 to 5,000 in early first quarter of 2022 as possible. For historians and average bull market returns since the lows in March of 2020 would equate to 4,750 to 4,800 on the S&P 500.
The selloff we experienced in late first quarter 2020 is much closer in its behavior to the 1987 October stock market crash that merely interrupted an ongoing bull market. It did not create a secular bear market or a period of stagnation. If you want more detail on the outlook, check out Troy, and I’s upcoming YouTube video when we release it over the next week or so, and I will be getting into more detail and providing additional data on future podcasts as we progress over the next few weeks.
At Oak Harvest, we are comprehensive wealth management and financial planning advisor located right here in Houston, Texas. Give us a call to speak to an advisor. We can help you craft a financial plan that is independent of the volatility of the stock markets. Our phone number here in Houston, 281-822-1350. We’re here to help you on your financial journey into and through your retirement planning. Have a great weekend. This is Chris Perras.
Speaker 2: All content contained with Oak Harvest podcasts 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, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities.
Indexes, such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and past performance is not indicative of 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.