Second Half Outlook Breakdown – Part one: It’s a Bull Market

Chris Perras dives into Oak Harvest’s outlook for the 2nd half of 2021, starting with an exploration of our base case view: “We are in a bull market.” Join Chris for this edition of Stock Talk and learn more!

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 25th Stock Talk Podcast: Keeping You Connected to Your Money. Last week we released an abbreviated version of our second half, 2021 outlook entitled Let the Good Times Roll. Troy and I will be doing a YouTube video version soon of this outlook and releasing that in a week or so. Listeners can go to and look under the investment management tab and our market commentary section, and pull up both the audio podcast and the analog version of this report.

Over the next few weeks, I plan on breaking down this forecast into four to six segments focusing each segment on a different topic currently on investors’ minds. Those topics will likely be but are not limited to number one, it’s a bull market, number two, the Federal Reserve’s actions such as tapering or raising interest rates. Three, investor inflation expectation concerns, four, real growth rates in the stock market and the economy, five, sector and style rotations in the stock market, and six, demographic trends.

First topic, we’re in a bull market as defined by general investor terminology and as such, the investment team at Oak Harvest remains very optimistic on the second half of 2021 and early 2022 stock returns. We titled our second-half outlook, Let the Good Times Roll. As we’ve discussed now for almost a year, so far it’s a very normal bull market. Moreover, the data confirms that it is not unprecedented, as many will say, and is so far very normal by historic standards. What is the definition of a bull market? Well, that is a gain, a positive 20% or greater without a -20% or more correction.

First off, historically, secular bull market economic cycles can last 15 to 20 years. The current secular bull market economically is looked to have started around 2013 according to most chartists. By that measure, this would place us around mid-innings of the secular economic bull market. Within these longer timeframes, we can look shorter term at the more precise +20 -20% definition of bull markets. If we do this, we have find that there are 26 bull market runs since the 1920s. That is there are 26 periods where the market went up 20% or more before it had a 20% correction.

The data, as provided by Merrill Lynch, shows that the median bull market return over those 26 bull markets has been 77%, and the average bull market return was almost 114%. As of mid-May, when the S&P 500 was around 4235, the current bull market since March 23rd, 2020, when it made its lows, stood at roughly 89%. Statistically, the current moves over the last 15 months is far from unprecedented. In fact, it is barely average in height and percentage returns coming at rank number 11 out of those 26 bull market cycles.

Mathematically, should we get to the average bull market return before succumbing to a -20% correction, the S&P 500 would reach almost 4800, a number that not coincidentally falls within our forecast for the markets into the first half of 2022. The two recent years, most similar in timing to this 2021 period are 2013 and 2017. Not surprising to our investment team, these are also first-year presidential terms. Of interest to us is that both of these 15-month spans ended up with almost identical 38% trough to peak returns from election in 2012 and 2016 when the markets troughed into, their peaks in the first quarter 15 months later, in 2014 and 2018.

Right now the model of the 2013 President Obama round two continues to be eerily similar and almost the exact same pattern, whether it’s commodity moves, interest rate moves, inflation moves, real growth moves, or sector rotations. Should we achieve similar results of up 38% from the 2020 election day close of 3370 by the early 2022, the S&P 500 would stand at around 4650. That’s still modestly above our current year-end forecast of 4600.

Looking forward, on the upside, we continue to see a very strong second-half returns, hence our title taken from the Cars’ classic, Let the Good Times Roll. By strong, we mean a summer rally target of say 4400. This advance is likely into mid third quarter on the S&P post-second-quarter earnings reports as companies start to buy back stock again and investors become increasingly certain that the Federal Reserve’s Jerome Powell will continue to make all the right moves. It’s summer, and as far as the team at Oak Harvest is concerned, so far it’s a pretty normal summer at that.

The Oak Harvest projection for where the S&P 500 closes year-end 2021 and early 2022 has not changed. It remains well over 4600. This is not a stretch by historical standards. In the weeks ahead, we’ll provide some additional tools we use for forecasting by way of the options markets and volatility markets. Using these tools, we hope listeners will see that these measures mark the second half of 2021 and early 2022 as positive for the markets, a continuation of the first half of 2021.

The selloff we experienced in late first quarter of 2020 is much closer in behavior to the 1987 stock market crash that merely interrupted an ongoing secular economic bull market and did not create a secular bear market or a period of stagnation. If you want more detail on our outlook, check out Troy and my YouTube video when it’s released over the next few weeks, and keep listening to this series of podcasts detailing our second-half outlook, Let the Good Times Roll.

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. Hopefully, we can help you craft a financial plan that is independent of the volatility of the stock markets. Our phone number here in Houston, Texas 281-822-1350. We are here to help you on your financial journey into and through your retirement. I’m Chris Perras. Have a great weekend. God bless you and your family.

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