Stock Market Trends – Are They Acting Silly? | Stock Talk Podcast with Chris Perras
I am Chris Perras, Chief Investment Officer at Oak Harvest Financial Group, we are an investment management and retirement planning advisor located in Houston Texas. Welcome to our November 19 YouTube, stock talk “keeping you connected to your money”.
Two weeks ago, our podcast previewed a short-term period into mid-November, highlighting potential higher stock market volatility caused by fast moves in interest rate markets. We based this analysis on the real-time indicators we use, none of which have anything to do with government economic data. And so far, we have indeed seen a pickup in volatility, and a fast dip down in the overall markets. Please, go and subscribe to the Oak harvest YouTube channel if you are interested in our original content.
Last week, we recapped our early, 4th quarter 2020, ignore the political, pre-presidential swirl, this is how early bull markets look, its time to get more aggressive, call we made by way of our podcasts. Viewers new to our podcasts, can google “Oak Harvest, Waiting No More – This is how Early Bull markets look”. This was a podcast released on Friday Oct 30th, 2020 – pre-presidential election. We followed up this podcast with a few others in November of 2020 titled Early Bull markets, Buy the dips, Making sense of it all and another titled “Santa shops early” on Nov 20th.
I mention this now, because, while our team is still very positive on the remainder of 2021 and early 2022, for reasons we have repeated every dip along the way this year, we appear to have entered or appear to be entering the “silly season” in this stock market cycle. And in our opinion, that is ok. Our investment team has seen this stuff before.
As always, we are here for our clients. I have been working in the investment management industry for about 25 years now. Most of the time as a generalist, portfolio manager or analyst, allocating investors’ money across multiple sectors and industries.
And on several occasions, I have been privileged to see and live through the dynamic currently playing out in front of me. That’s a nice way of saying, I’m getting old, I’ve been through a few cycles, and I’ve seen this play and ending a few times.
Its script is almost always the same. It reads like this. The economy and stock markets experience a shock, caused by a black swan, onetime event like Covid, or the 911 attacks, or they experience a buildup of excesses over years, like the internet expansion in 1997-2000 or overinvestment in real estate in 2003-2008.
Subsequently, we experience an economic slump and a recessionary drop of over 30% down in the stock markets happens over some time period. This time, the Covid outbreak, and our response of closing down our economy induced a recession and caused a roughly -35% drop in the S&P500 over 4 weeks last year.
Subsequently, the Federal reserve has responded with monetary policy and our Federal government responds with fiscal spending policy’s and the stock markets recover first, with disbelief by most TV prognosticators and those calling for depressions, followed 6 to 9 months later, by the economy digging itself out of a hole.
Of course, looking back at the last 18 months, this is almost exactly what has happened. Against the ongoing calls of “unprecedented” stock market action, and ongoing calls for double dip recessions, or that there was no chance for a quick economic recovery, the markets have recovered almost precisely in line with its normal behavior, this cycle, since 2009, during QE, under a first-year presidential term. Obama round 1 in 2009 and round 2 in 2013. Donald trump’s first year in 2017, and now President Joe Biden in 2021. The stock markets have all behaved almost in line each year.
And guess what viewers, the stock markets sit near all-time highs. And the money that was pouring out of the markets in March and April of 2020 at the market lows is pouring back in. Remember listeners, Fidelity investments did some research in 2nd quarter of 2020 into their client’s behavior and their data said that 30% of people over the age of 60, sold 100% of their equity holdings, out of fear during the Covid drop. Well money is now cascading back into the markets with the S&P 500 up over 100% since the Covid lows. So much for the notion of buy low sell high.
And any investors who sat still back in March and April of 2020, and didn’t tell or demand that their advisor “get me out” or “take me to cash”, are probably happy right now. Those who had cash on the sidelines back then and pushed some money into new or existing investments are likely even happier!
But many investors who first waited for the smoke to clear on the virus, then waited on the Presidential election outcome, and after that waited on improving government economic data before adding to their portfolios, well, most likely, many of them are feeling “behind” the curve, in their own minds.
They might be starting to feel a little jealous of those stories they are hearing on TV about all the money others are making trading Tesla or investing in Bitcoin and other digital assets when it was about $7000 in April of 2020 and almost $70,000 now 18 months later.
The rally in risk assets has been going on now since April of 2020, or about 20 months.
So, while statistically speaking, we still have a few months left in the initial stages of this wonderful rally; I think we’re now close to the last couple of innings. And viewers, just like the last few innings of a tense baseball game or a close football game, those final couple of months into that peak are usually the most exciting because those final few months are normally some of the most profitable months to those who invested early. I repeat, who invested early. But this period can also be one of the most difficult, for those latecomers to the rally, on the other side.
What normally happens in the final few months of these 2 year moves? Stocks start to make exponential up moves. For those of you have forgotten your math, what does that mean? It means that the dollar gains, and % gains start to accelerate upward, at a faster and faster rate. The price moves on the leading stocks go from say $.5/s a day increases, to a pattern something more like this. $.5/s then $1/s a day. Then $2 a day up. Then maybe $4 and $5 a day up and onto $10 a share a day. So, the % returns actually accelerate, exponentially on the upward move. And if you are already in these names its exciting. It’s exhilarating. It’s fun and man is it profitable!
But make no mistake: You are not a genius investor because of this, unless you recognize it for what it is. What is it? It’s Other people’s FOMO, fear of missing out, and a massive tidal wave of money flowing into investments you already own.
The Last 4 weeks have shown us a preview of the silly season in many stocks. Other people on TV will likely deem this the Santa Claus rally in December sometime. But listeners, is that this began on October 4th when hedge funds were being forced to liquidate their portfolios and retail flows into the stock markets for the 4th quarter started to pick up.
One need to look no further than Tesla’s stock. Which albeit is an amazing company. However, Since the early October lows in the S&P500, when many in the TV world were predicting a -10% October correction in the markets due to a Chinese real estate company imploding, Tesla’s stock has now rallied over 60%…in 4 weeks, on the back of speculative retail call option buying.
That’s not fundamentals. That’s supply demand for a stock and money flowing into a theme. That’s trading and positioning and retail speculation through call buying. And its profitable, and really fun, if you are early in that game. However, it’s an indication that we are in the later innings, of the roughly 2-year, initial up move in the overall markets and economy, not the first half.
I’m doing this now, because the team at Oak Harvest has decades of experience at actually managing other people’s money in the markets, in real-time, not just pontificating on economic and academic theories in newsletters, on TV or on Twitter.
I’m doing this now, to alert in advance, to what we think will be happening in the markets over the coming months. And a period of “silly season” is very normal price action in the markets.
Which brings me forward to today. The silly season should be upon us shortly. And yes, it is really fun if you are already holding those names that others start pyramiding into late into the moves. However, while we continue to see and aggressive 4th quarter and early 2021 rally led by large cap technology and growth stocks, don’t be surprised that if and when the markets and individual names start to have exponential moves over the next 2 months, we will NOT be the advisor cheerleading at the front of the pack, the need to buy more of the winners of 2021. We will not be the advisor who was late to the party and thinks they can be the last one to leave.
We could not have been clearer in our October 30th 2020 podcast entitled “Waiting no more, this is how early bull markets look”, that that was the time to have FOMO, if you have to have it. That was the time to Fear missing out for 2021.
And now, as we enter silly season, its time to go slower, sit back, enjoy the surroundings and the 2021 party. It’s time to let the late comers to the party, scramble around for the remaining food and drink. Let them fight and scrum for the last of the best food.
Viewers, silly season is a blast of a party, but the hangover can leave those who show up late and eat and drink too much late in the evening, with one hell of a hangover in the morning.
Should we get the 4th quarter silly season party, we would expect a material uptick in realized volatility later in the first quarter of 2022, and a bit of a market hangover.
And for our clients, just as we have been all of 2021 on the way up, we will be there for you throughout any stock market correction or hangover.
Those are the times when you should understand that the relationship we have with you, is first based on your goals and needs. That is how much do you really need in retirement based on a budget, versus your “greed’s”, which is how much you want in retirement to satisfy your life beyond your goals and budget.
Viewers, give us a call here at Oak Harvest and ask to speak to one of our advisors. Let us help you craft a financial plan that meets your retirement goals and needs first, and your greed’s second. Call us at (877) 896-0040; we are here to help you on your financial journey into and throughout your retirement years.
Many blessings, stay safe, and have a great weekend.
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.