Market Update: Is it the Top? (Probably Not)
Global equities were mostly stronger last week, with Europe led by Germany/DAX (+1.4%) and France/FTSE (+1.3%) seeing the biggest gain. Here in the USA, with the S&P500 making another marginal new all-time high, the NASDAQ, technology heavy, (-0.1%) lagged. Financials (+1.3%) and consumer discretionary (+1.1%) led the way higher, while health care (-2.8%) and energy (-1.4%) and precious metals were the worst performers.
The week ended with more records on most major indexes. Friday the 13th turned out to be very unlucky for the doomsayers and “sky is falling or about to fall” strategists, newsletters, and media personalities. The S&P recorded 3 straight days of new highs, which makes 47 for the year. August is the 10th consecutive month where the index has recorded a new record. The DJIA kept its streak alive by posting 4 consecutive days of new highs (37 in 2021).
Bull markets trend and grind with strength begetting strength and if anyone who has been negatively inclined and wrong for 12-15 months wants to again call this “The Top” or decide this is “The Time to hedge”, please ask yourself the Dirty Harry question: “Do you feel lucky? ”
Over the weekend, data out of China showed a greater-than-expected slowdown, as the spike in COVID outbreaks adds to headwinds. Retail sales climbed 8.5% y/y in July, but that was lower than the 10.9% forecast. Industrial production also came in below expectations, slowing to 6.4% y/y. Capex came in at 10.3% y/y in the first seven months of the year. China’s economy has rebounded but the expansion is showing more signs of slowing, as businesses cope with higher government interference at the same time the country’s zero-tolerance approach to the virus, slows local demand. Adding to the China concerns, the world’s 3rd largest port has been shut down due to a single positive Covid test.
On a somber note, the American forces withdrawal from Afghanistan after 20 years looks to be going horribly wrong as the speed of the Taliban resurgence there has only taken a few short days. Regardless of opinions or outcomes, the entire team at Oak Harvest sends our prayers for our servicemen.
Oak Harvest’s Investment Team leadership (James and Chris) have not changed our view on the remainder of 2021: we remain positive on the markets through at least January 2022. We remain mindful of a possible normal August through October seasonal pullback of anywhere from 3 – 6%. Our view is relatively straightforward (James’ reminder: “Don’t try and over-complicate things”): The stock market is driven by: 1) Earnings (cash flow), 2) Multiples (P/E’s), and 3) Liquidity (Federal Reserve). We believe that ALL of these remain strong. “Strength begets strength”. Chris, as Oak Harvest’s lead researcher and strategist, has pointed out that many other strategists have had investors falsely preparing for “corrections” of various sizes for the past 12-15 months. And James, our firm’s portfolio manager and investment specialist, explained in his piece “I Don’t Want to Invest Now Because…” that there is ALWAYS a “good” reason to be fearful and “not invest.” But, such attitudes usually end up just costing investors both wealth and peace of mind:
https://oakharvestfg.com/i-dont-want-to-invest-now-because/
With that said, our positive view does not mean that we are not already looking out further. Here are some things on our mind: Covid/Virus effects, Higher taxes, Interest rate changes (inflation and real growth), other domestic policy, China policies, the 2022 elections, global supply chains. We think that these factors can impact the stock market. However, currently, our view of when most of these factors impact the markets seriously remains further out in the first quarter of 2022. For the remaining months of 2021, we believe stocks continue to move up.
Fridays 8/13/2021 Podcast:
https://oakharvestfg.com/stock-talk/taper-tantrum-seasonal-swoon-we-think-both-are-highly-unlikely/
Interesting Readings:
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