Stock Markets Setting Up For Fall?

Post the strong first half move in the overall stock market into mid-July, the overall markets have been trading sideways to down just as our investment team laid out back in late June in our Oak Harvest video S&P500 4300+, “it’s summertime for a break”. We’ve followed it up almost weekly with additional content on how historically normal 2023 has been so far, what, when, and why our investment team expected weakness in the 3^rd quarter markets, risks to the 4^th quarter, and when and at what level we expected the markets to finally regain their footing and upward trajectory.

The title of this week’s episode is “Readying for Fall”.  Before we press onward, please take a moment to click on both the subscribe and notification bells so you will be alerted when our investment team uploads our latest content.  Or better yet, give our OHFG team a call at 877-806-0040 to speak to our team and set up an initial consultation with an OHFG advisor to discuss your personal financial situation.

The S&P 500 has gone net? Nowhere in a sloppy and choppy manner since Wednesday June 12^th.  As of this was written the SP500 has been flat for 3.5 months.  As the OHFG investment team warned clients and prospects in early summer videos in late June, we were set to enter a sloppy, choppy time frame.  Call it a trading range, call it a general consolidation, call it a lull, but history and the data said we were set to frustrate many latecomers to the 9-month rally off the October 2022 lows.

I must remind investors this was the day after semi-retired hedge fund billionaire, Ray Dalio, having missed almost +20% off the October 2022 lows said it was time to buy stocks. Here’s the daily chart of the S&P500 for the last 18 months.

The short-term good news? The S&P 500 was already down almost -300 points and -6.25% over 2 months as of this writing. The markets are now getting oversold in terms of price, and sentiment is quickly turning dour compared to its mid-July enthusiastic levels, so don’t be surprised if we have a short-term trading rally into early October.  Here’s a chart of the cash SP500 with a MACD indicator at the bottom.  MACD is short for Moving Average Convergence and Divergence and is a common momentum and oscillator indicator many traders use.

AT 4325, we are quickly approaching what our team thought would be support for the markets during late summer and early fall, 4230-85 on the cash SP500. This is at the same time we will be exiting what has historically been the worst 10-day, 2-week trading period of the year, the second half of September, post option expiration into month end.  For all those data nerds who follow this stuff, here’s the pure daily return data from Steven Suttmeier at Merrill.

What I find interesting is 1. This Suttmeier’s data is quite in line with another market historian our team follows, Larry Willams.  Yes, the same Larry Williams who is occasionally referenced on Jim Cramer’s Mad Money show and the same Larry Williams who is one of only a few strategists, traders, and investors I know who correctly forecast the timing of the Covid bottom as well as the upside strength afterwards.

So the good news is, what we have experienced the last 2-3 months is seasonally very normal and should be nearing an end.  The bad news? I said nearing an end, not over and done with.  Even if we are nearing an end in the price declines, which we have expected to retest 4250-85, we still have likely more time on the calendar to go before investors exhale and return to a quite normal year end rally.  FWIW, zooming in on Suttmeier’s work, one zero’s in on Oct 19^th being historically the last of the poor trading days looking back in time.  Remember though past performance is not a guarantee of the future and nothing in the stock markets is ever perfectly accurate and precise.

But I don’t want to leave you on a down note, so I leave you with this.  Year to date? It’s been as normal a 3^rdyear election cycle as you could get versus historic norms.  Should this continue to play out post October expiration?  One would be looking up back toward 4600 into thanksgiving and back approaching ATH’s into year end, call int 4750-4800 and more new ATH’s, albeit with much higher volatility in the first quarter of 2024.

If you want to track one real time piece of data, keep watching real interest rates.  Yes, not inflation rates but real interest rates.  Why? Because inflation and inflation expectations are rapidly dropping, but the stock markets are being held back by hawkish talk of Federal Reserve members, which are keeping real interest rates, which determines Equity Risk Premium, or ERP, abd goes into calculating a “fair value” or “fair” P/E for the overall market.

Lower real interest rates typically translate to higher equity valuations, and higher P/E’s all else being equal.  Where the “all else” is usually earnings.

Oak Harvests 1^st half 2023 outlook, which played out as we expected, was based on a realized peak in October of 2022 in “real interest rates”, peak in volatility, and the historic norms for a Presidential Election cycle. So far, the summer is also as expected and playing the tune of “normal”.

It’s interesting to note that the strongest year-end stock returns for the markets have come not when the markets are up the most through summer.  Not when they are up over 20%, but rather when they are up between 10-20% for the first 8 months of the year.  Like were this year. The most recent >20% run through August was?  2021 and while 2021 closed strongly and at all-time highs, we know how the first half of 2022 turned out.

At Oak Harvest, we currently manage broadly diversified equity portfolios that balance risk and reward for our clients.  We don’t concentrate our clients’ funds in only one or two sectors, seeking to hit a grand slam.  We try to hit singles, doubles and occasionally a homer if someone makes a mistake and we find a stock at the right price at the right time. The overall tools our advisors and financial planners use are usually a combination of markets based and insurance-based tools to meet your retirement goals.

Our investment team is busy working on some new, and highly unique equity models. Models and tools that few RIA advisor teams have access to and few investment teams have the experience ours does.  One of these tools may even allow our investment team to express negative views on single stocks, sectors, or the overall markets if we so desire.  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 or click on this link and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.