Navigating the Stock Market Rollercoaster: Doomsday or Just The “Old Normal”?

Permabear stock market appearance, doomsday economic and black swan market calls, break out the 1987 stock market crash cart replay, and it’s the “end of times” zombie apocalypse calls garner 10-100x the attentions, clicks, and views in the financial world than those of “it’s not different this time”, history rhymes and repeats , we’ve seen this before, or we are back in the “old normal”.  Just pull up the number of views my videos have gotten the last 3 years, while being largely correct in both time and price on most twist and turns on the levels of the stock market since the Covid lows in the late 1q2020 versus those of the myriad of largely wrong but loud and promotional negative financial community.  Folk’s fear, while statistically usually wrong and financially unprofitable to long term investors, sells well in the financial markets.

The “Old Normal” keeps playing out in 2023, almost to the week and day.  That was the title of our 2023 market outlook penned back in December of 2022 and that is what we continue to see year to date in the stock markets regardless of the doomsday calls throughout 2023.

The S&P500 bottomed and turned up right on cue for a fourth quarter rally., Friday October 27th, at the end of institutional tax positioning.  That was at the end of the final full week in October. The OHFG investment team had discussed this outcome for months, all the way back in June and July. Why? Because investors, like it or not, financial news swirl or not, that what the “old normal” looks like in the financial markets.

Three weeks ago, my OHFG Stock Talk was “Its make-or-break time,” and the week of the markets low on Friday the 27th it was, “Is it really different this time”? Here are the two links to those videos if you missed them. (insert links to both prior videos). Last week, we updated real-time data we watch that we have been sharing with our clients and followers, in advance, over the last 4 months during the summer stock correction, which said the market was about to turn up. That was last week “Santa has a Calander and a Bloomberg.”  For years, I have been asked what I thought about various economic data, political positions, global tensions, and much to the dismay of most, I continue to call em like I see them. They should not matter much yet to the overall stock market because we are in currently in the old normal and the old normal says while the” end is near, but it’s not this week, month or quarter in the financial markets.  This week I’m going with the highly promotional, eye catching and self-serving title, “Investors, the End is Near! (but it’s not today).

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The S&P500 traded down and to the right in a very normal seasonal fashion since the mid-July 4600 peak. Here is a chart of the S&P500 since last October 2022 low.

The S&P500 since last October 2022 low

You will see the overall market went nowhere since mid-June of this year and closed slightly below the 200-day MVA the last full week of October on cue. Similar to 2022, similar to 1999, even similar to the 1987 crash cart calls by many lobbing out historically inaccurate stock overlays as the S&P500 looks nothing like it did in 1987. While many of those calls were put out in force by a host of financial TV personalities, the OHFG team was messaging it was finally a favorable environment for the market to turn higher.

So investors, what would the future look like under a continuation of the “old normal”.  Theres both good news and bad news on that front.  First the good news. Here’s the daily average returns of the stock market for close to the last 80 years from Merrill Lynch. Break out your reading glasses, and you will see that statistically speaking we are in the seasonally strong period for the US stock markets through year end.

Table 3: S&P 500 Day of month seasonality returns: 1928 to present

In fact, while many TV financial personalities were pitching doom and gloom at the end of October, they missed the bottom on October 27th.  Many traders and investors were still negative saying that the market had moved too far too fast and they didn’t like the markets at 4360-4385 as well.  Investors, the bad news for them is historically, they blew it.  They missed their chance to buy low.

I got scores of calls from friends and trader friends after the markets had rallied almost 250 points in 8-9 trading days saying they were going to buy a dip or pullback.  And then those same associates told me how bad it looked on the squiggle down move on Thursday November 9th and they had pulled their buy orders and would wait for lower prices. And what happened? A near vertical Friday November 10th.

Like it or not, historically, the market won’t let these traders or investors in until its higher after Thanksgiving.  I have done the research, as it says that “normal” is the market rallies almost all the way back to its summer peak before it allows anyone in in a material way.  Yes, you heard that right, normal is we regain almost 4600 on the S&P 500 in only 4 weeks. 4 months of losses recovered in slightly more than a month. It always starts with short covering excuses, but stock buybacks, negative positioning and sentiment, and better demand vs. supply of stocks into November and December usually rule the day.

Many investors and TV commentators have discussed how bad breadth for the market has been all year. They have justified their bearish stance by saying that not enough stocks were “working” or outperforming the markets YTD.  Statistically they are correct that a very few of the biggest market cap stocks have carried the markets YTD.  However, having missed the move in the overall SP500 YTD will they now reverse course and get bullish, because of a very rare and historically bullish “Zweig breadth thrust” occurred on November 3rd?  I doubt it? It didn’t sound like it while I was watching the financial news channels. Even though we’ve talked about the rarity of these events for 5 years.  Here’s the data from Steve Suttmeier at Merrill Lynch on the historical rarity of these events.

Post the 1930’s and Great Depression, the broad NYSE has had only 17 Zweig breadth thrusts. Only 17x that’s it.  The S&P500 is up 100% of the times over the next 130, 190, and 250 trading days with the average returns of 16.3% (13.0% median), 20% (17.0% median) and 22.7% (22.8% median) respectively. This equates to between 5000 and 5100 on the S&P 500 in early 2q of 202 is statistically historically possible. No guarantees of course, but not coincidentally this is where the OHFG has placed the optimistic 1h2024 outcome for the markets for over a year.

As for a visual template of what a continuation of the “old Normal” might look like for the remainder of the 4thquarter of 2023 and first quarter of 2024, I once again update a chart I have referenced for about a year, comparing the final 2 years of the Internet buildout in 1998-2000 to the current AI cycle buildout land grab that started in October of 2022. Here is the S&P 500 overlaid for those time periods:

S&P 500 overlaid for those time periods

To date, the markets’ moves in many asset classes have been eerily similar to the day and week. I challenge you to explore this topic and analogy of time periods more in your own research. For those investors who are history and chart junkies, here are two more indexes overlaid for those time periods, the October 1998-March 2000 internet bubble and now, what many think is an AI bubble.

The smaller cap Russell 2000 index:

The smaller cap Russell 2000 index

And finally, the SOX/Semiconductor Index:

SOX/Semiconductor Index

For those who are skeptical of this historical analogy or reference as a comparable time, I have to ask you if you recall what semiconductor company came public in their initial IPO in early 1999?  If you guessed Nvidia?  You would be correct. I challenge you to overlay NVDA’s stock chart from 1999 and now, 2023, and make a good argument for why it isn’t different this time?

So, the good news? Is no, the “end” of the rally should not be today, or next week or even this year, and this rally should “end” from higher levels that few investors or strategists have consistently forecast. However, if this historic analogy keeps playing its tune, volatility should increase in 2024 and post the first quarter, it will likely be a very, very difficult environment for the overall markets and particularly passive index investing.  Investors likely be better served gravitating toward more active trading strategies and ones that can hedge or even take short positions in the markets, sectors, or single stocks.

For now, the 2023 summer selloff that we forecast from July was not “different this time” and a seasonal Santa Claus rally, starting late October and lasting into late December and potentially extending in a volatile manner into Mid-March 2024 will not be either.

Oak Harvest Financial Group manages broadly diversified equity portfolios that balance risk and reward for our clients. The investment tools our advisors and financial planners use are usually a combination of markets based and insurance-based tools to meet your retirement goals.

Our in-house investment team is busy working on new tools for our advisors and retirement planning teams to use in the future. Stay tuned. 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.