Seasonal Swoon? Doubtful. A Dip? Always Possible.
The S&P 500 rose +0.9% last week to take its 2021 return above 18% amid a solid earnings season and some negative calls for seasonal swoons. This morning oil prices have dropped below $66 on 1) hedge fund mispositioning, 2) global growth concerns due to the Delta variant, and 3) normal slowing seasonal demand. The 10-year Treasury yield rose 8 bps last week to about 1.30% just as TV commentators were predicting 1% on weaker economic demand. Most of this move came against less dovish Federal Reserve comments and a stronger payrolls report.
The Bloomberg “Economic Surprise Index” which measures combined economic data, in real-time, versus economist forecasts. In examining historical data from this index, it shows a normal troughing in August and a gradual upturn through Christmas during the year 2013 and 2017. This should look and sound familiar to our followers. Readers can see this chart below. We also share below what we believe is the relevant data debunking the calls for a “seasonal swoon” in August through October. With that said, a seasonal “dip”? Sure, -3-4% is possible at any time.
Gold remains a faulty asset class (ex-jewelry) at best, in our view. Often sold and pitched by others on TV and in newsletters as an “inflation hedge,” we cannot find the rational for owning it for this reason, based on data. It is bulky, has huge insuring costs, and large transaction costs and frictional costs for the physical metal. The rampant fear mongering and negative talk on TV year to date has been the return of “70’s style inflation”. Year to date, Gold is down -7%. Meanwhile the S&P500 is approaching a +18% return year to date. Based on this, a fair question seems to be, which asset class appears to be the better inflation hedge? Equities or gold?
The OHFG investment team remains mindful of normal August through October seasonally in the stock markets making for a 3% ~ 5% pullback possible at any time. At the end of the day, the stock market is driven by a few things: 1) Earnings (cash flow), 2) Multiples (P/E’s), and 3) Liquidity (Federal Reserve). All of which remain strong.
Items we are watching: Covid/Virus effects, Higher taxes, Interest rate changes (inflation and real growth), China policies, and 2022 elections. However, currently, our view for when these worries impact the markets seriously, remains farther out into the first quarter of 2022.
Fridays 8/6/2021 Podcast:
https://oakharvestfg.com/stock-talk/seasonal-swoon-thats-not-our-tune/
Interesting Readings:
Economic Surprise Index
Seasonal Swoon?
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