Sweat the Summer Market or Sit Back? What We Expect and How to Handle Your Retirement Portfolio

Summer seasonality in the US stock market is historically a real “thing”.  We’ve discussed it many times in the last 5 years.  We started previewing summer seasonality for 2023 as far back as 3q22, when we were discussing the upcoming likely strength in the markets for 4q22-1h23 due to the 3rd year election cycle dynamics.  Back then the rational reasons seemed to be inflation would decline fast symmetrically to its 2021 rise and the Fed would slow the pace of interest rate increases.  We had already been through an economic and recessionary stock decline in 1h22 in our book so the strong rally seemed the easier path.   And what happened? The rally came when and where it was supposed to and even stretched a bit higher than our forecast for a couple of weeks in July. With that, it should come as no surprise to investors that the stock markets have consolidated and sold off since July 19-20th, which was the week of July option expiration about 5 weeks ago. 

The title of this week’s episode, Summer stocks, trade that range.  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 877-896-0040 to speak to our team and set up an initial consultation with an OHFG advisor to discuss your personal financial situation.

Post the strong first half move, we have entered what should be 3 or 4 months of some negative monthly returns, and higher volatility at worst, or sloppy, choppy sideways behavior, a general consolidation, and “net” little to no price appreciation in the S&P 500 at best.  Since the July 27th intraday peak of 4607.07 on cash Sp500, the SP500 has fallen back a little more than -5%.  Had you been perfect selling that top.  Which of course no one is.  The tech heavy NASDAQ composite peaked at 14446.55 on? July 19th which was Wednesday volatility expiration.  For you Dot.com bubble historians, guess what date the first half of the Dot.com bubble peaked during the summer of 1999?  Yes, July 19th. Peak to trough on Friday 18th, options expiration, the Nasdaq Composite which led our 10-month rally declined almost -8.9%. Had you been a perfect seller on July 19th, which no one expect a few unmentioned CNBC “contributors” seem to claim to do time and time again.  Much like the summer of 1999, the NASDAQ roundtripped both its June and July upside move in 3-4 weeks. Here’s the chart of the Nasdaq Composite (CCMP) for the last 18 months.  You’ll see the strong rally since mid-October, Thursday, Oct 13th 2022 to be exact.

Nasdaq Composite (CCMP) for the last 18 months.

 I’m using the NASDAQ because it seems to be so many people focus nowadays due to technology investing, but the S&P 500 looks almost identical albeit with lower volatility and lower returns. No 4q22 recession?  No 1q23 recession, or 2q23 recession.  No lower lows.  No crash. No 1987.  Just a very normal 4q-1h rally in a 3rd year Presindetial cycle where the party in power in DC is spending money to try to keep the economy strong into the 4th year election.  

Here, the same chart of the NASDAQ composite in 1998-1999, the first leg up of the internet bubble. 

NASDAQ composite in 1998-1999, the first leg up of the internet bubble.

Oct 8, 1998 3q low, followed by a huge rally extending about 195 days to a July 19th 1999 summer peak, followed by a 3-4 week decline into mid-August that round tripped the returns of both June and July. This was Followed by a very normal kick save summer rally to save 3rd quarter returns the second half of August into mid-September, followed by a selloff into Halloween.

What people really remember about the internet bubble at the end of the decade was the 5 months move from Halloween in 1999 through mid-March 2000 that was triggered largely by 2 factors. First Federal Reserve Chairmen Alan Greenspan and other were deathly afraid of Y2K causing a calamity in the banking system and the economy so in mid-October of 1999 he came out dovish during a period of high liquidity, fiscal spending, and economic growth and 2- money in the form of capital expenditures was pouring, and I mean literally pouring into the buildout and expansion of “everything internet” related.  Computer capacity, semiconductor capacity, logistical capacity, real estate capacity, everything. Which peeked out the US marginal return on invested capital and growth at the same time the lag effects of prior Federal Reserve rate hikes were about to hit.

Will the same things happen in 4th quarter 2023 through 2024 in both our economy and the stock markets?  I do not know. Things are lining up eerily like back then.  However, what we can say is that regardless of what 2024 holds, and no one can ever tell with certainty including the team at OHFG, that year to date, the path in both our economy, and stock markets, has been very normal for a 3rd year Presidential cycle and our team expects the 3rd quarter to play out much the same.  A whole lot of normal which would mean a big fat summer trading range for 3 more months now.

Our investment team remains positive on the total return outlook of the S&P 500 into year end, particularly with the S&P having sold off over 5% the last 4 weeks and the NASDAQ almost 9% and would use seasonal weakness throughout the next 3 months as an opportunity to add to stock positions or find names for your portfolio and a late year rally.  While many other strategists, advisors, and newsletter writers, have been calling the stock markets a bubble for years, we still see good investment opportunities in the public markets.  True bubble type equity action, and its popping, in our opinion would come from higher levels in the stock markets, later in the cycle. 

Now that we’ve sold off and roundtripped a few months of returns, the charts and cycles we’ve discussed should make bears very cautious in timing your shorts for the big secular collapse in the markets and tech names. 

Where do we stand?  It’s summer, and so far, the markets, being the SP500, or NASDAQ or SOX indexes, are acting in a very normal fashion.  Will we continue to act normally over the next few months?  Our team sees it that way.  Are we in an AI bubble that many are calling for, almost all those who missed the move up in tech stocks since last October?  I don’t know, but if it is?  History says, we are likely in the pause that refreshes and refuels the bubble, not its peak.

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. For those investors who are less optimistic and risk taking, those seeking higher dividend income that grows, those investors willing to forgo some potential price appreciation in favor of lower volatility, we have a dividend growth equity model.  

Those investors who are more in the optimistic camp, seeking higher long-term price appreciation which does carry higher expected volatility without the focus on dividend income, we have a Blue-Chip growth equity model. 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, that few advisors have the experience our investment team has for our advisors to use as tools for our clients in the not so distant future. Some that would allow our investment team to express negative views on single stocks or the 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 here to schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.