More Normal?- Summer Rally

For many investors tuning into CNBC, Fox News or Bloomberg all too often, the idea that stocks and the S&P 500 could be nearing ATH’s again is unfathomable.  Wasn’t there near unanimous agreement in 3q23 that we were heading for a recession in 1h2024?  Alas, we didn’t and stocks are much higher. Almost exactly 1100 S&P points higher from the late October bottom.  But even after such a run, many of those same personalities who got it wrong ofr their followers for the better part of 2+ years are still on TV preaching doom and downside. While their theories may one day be proven to be correct, exactly how many months, quarters, years, or decade+ in the case of Jeremy Grantham do they get for being “early”?  Investors, being “early”, is a polite way of trying to disguise being “wrong” but not admitting it.  Even the greatest investors (like Jim Simmons of Renaissance Technologies who passed away last week) are far perfect in this business.  But at some point, even the greatest investors admit when they are wrong, not just early.

So far the “old normal” has played out for 2023 and year to date 2024.  What would more of that look like the next few months.  Well historically, the last couple of weeks in May aren’t the best for stocks. So with the stock markets near ATH’s and volatility now back around our historically low bound for over 3 decades, of 12.5 spot Vix index, ex 2017, I would expect some sloppy stock behavior in the coming weeks. It’s quite rare for stocks to break out to meaningful new all-time highs on the first attempt as many traders who bought late in a move, are happy to be back to breakeven, and sellers tend to pick up their pace.  Here’s a daily chart of the S&P 500:

chart 1

One can see the market lows in Oct 2022, March 2023, late October 2023, and most recently Mid-April option expiration Friday the 19th, 2024.  Looking back, an investor can see the prior times the last 2 years where the market “stalled” for 2-4 weeks, before breaking out to new highs.  Here’s the same S&P500 chart with the 2q23 and mid 4q23 highlighted in grey.  These are the times of the prior satalls we made before breaking out to new highs.

chart 2

This timing for a stall would also coincide with the work of Larry Williams.  Here’s Larry’s “best Fit” pattern for 2024 into 2025.  Remember investors, Larrys pattern and work was published in early January.

Chart 3

So far, Larry’s work, as it has been since the Covid lows in 2020, has been as good as divining the future path of the overall markets including twists and turns along the way.

The models our team has been following for quite some time have 2 very different outcomes for late 2024 and 2025 but they both agree with Larrys work.  Yes believe it or not, the “Goldilocks, Soft landing, Greenspan induced cycle of 1995 as well as the bursting of the Dot/com bubble in 2000, both played out in similar manners in mid-year with a very normal summer rally.

Here’s the chart of the S&P 500 in 1995 when Alan Greenspan orchestrated one of the only extended soft landings in our country’s history.  That year the S&P 500 was up a little over 15% YTD in a near straight line into May, paused for the month of May, and? Bottomed, market on close lows on the last Friday in May, May26th that year.

Chart 4

The markets went on to a significant summer rally of another almost +7.5% from there into the end of July, beginning of August peak.  What asset class outperformed the S&P back then by a wide margin? The Russell 2000 gained almost 11% over that 2 month period, besting the S&P500 by 50%.  Here’s the chart of the Russell 2000 index.

Chart 5

The really impressive part of this chart is the blue line in the background. That’s chart the relative performance of the Russell to the S&P 500.  While the Russell had been going up all of 1995 and making investors money, it was dramatically underperforming the S&P 500 until? Yep, the last day in May.

Chart 6

I bet youre asking yourselv why would Chris discuss the Russell 2000 and years 1995 and 2000 in the same video?  Goldilocks one year?  1995 and the Dot.com bubble bursting in 2000? In the other.  Well because, believe it or not, the Russell 2000 did the near exact same thing in late May 2000?  What’s that? It troughed the last Friday in May, MOC and promptly rallied 13% into late July, besting the S&P 500 during a summer rally few investors recall because they were so traumatized by the initial wave down in March and April of 2000.

Which brings me to this weeks lesson.  Investors, historically, stocks rally in summer.?  Why? I don’t kn

Investors, that’s it for this week, for investors or retirees uncomfortable with wider range of possible equity outcomes, the Oak Harvest team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorber “insurance” for a stock portfolio.  Information on this exciting new strategy of ours can be found at OakHarvestFunds.com.

Viewers, for those of you who made it this far, I want to give a shout out to the entire OHFG team as last week, USA TODAY, ranked us as one of the Best Financial Advisory Firms 2024. The award is given to top registered investment advisory (RIA) firms in the United States based on two key criteria:

  • Recommendations from individuals from among 25,000 financial advisors, clients, and industry experts
  • Growth in Assets under Management (AUM) over 12 months and 5-years, respectively

I personally am looking forward to helping us move up this list over the coming years by taking care of our current and future client base. From the whole team here, thank you and have a great weekend.