Six Months Up! To Fear or Not to Fear?
While dropping Friday and last week (-.4%), the S&P 500 and the Dow Jones 30 are heading into the August within 1% of their latest record high closes set last Monday. The tech heavy Nasdaq, which also fell Friday (on Amazons slower guidance) and last week, also remained just under 1% from last Monday’s record close.
The S&P 500 managed is sixth straight months of gains in July. Volatility increased slightly amid concerns about the economic recovery in the face of the spreading delta Covid variant. The Nasdaq Composite and Dow Jones Industrial Average added about 1.2% and 1.3%, respectively, in July, while the broad S&P 500 gained close to 2.3% last month.
As it stands, almost 300 of the S&P 500 have reported, with almost 90% topping earnings expectations. Overall operating earnings are expected to rise more than 70% y/y, led by gains in energy, consumer discretionary, financials and industrials. As such, the year-over-year earnings growth numbers will become more difficult in the quarters ahead with consensus currently sees just over 20% y/y on average through 2021H2.
Much is being made on TV of this being the best monthly winning streak for the benchmark since 2018. The tone to these reports is that the gains are negative for future returns. I guess these strategists and reporters either have been sitting in too much cash or not studying the history of stock market returns in high returning consecutive up months. Of the 21 times this has happened, 18 were positive with an average gain of over 12% over the next 12 months. (No guarantees of course).
Despite last week’s short-lived decline, the S&P 500 is up 35% in the past year, 27% annualized in the past six months. While the index is about 11% above its 200-day moving average, we remain positive for the next 6 months. Fear mongering over politics, Covid wave 3, and “peak growth” are, we believe, just that. Fear mongering.
The OHFG investment team remains mindful of normal summer seasonally in both the economy and stock markets making for a 5-6.5% pullback possible, but increasingly unlikely, with closer to 3-4.5% 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).
Things that we worry about. Our list is likely the same list as yours: Covid/Virus affects, Higher taxes, Interest rate changes (inflation and real growth), China policies, and 2022 elections. However, currently, our timing for when these worries impact the markets seriously, remain farther out into the first quarter of 2022.
Interesting Readings:
Weekly market updates contain general information and express the views of Oak Harvest Investment Services. All data, articles, and information cited are believed to be reliable at the time of creation; however, Oak Harvest does not warrant any information contained herein to be correct, complete, accurate or timely.
Oak Harvest provides links to content produced by other websites that OHFG does not control, and Oak Harvest does not necessarily approve or endorse such content and does not guarantee its accuracy. Nothing in this content constitutes personalized investment advice. All charts, indicators, or graphs included or referenced in this content have limitations, and no such material is able, in and of itself, to provide a buy or sell recommendation for any security. Strategies and ideas discussed may not be right for you, and views and opinions expressed may change without notice. Strategies and ideas discussed will not apply to all client accounts or portfolios.
Nothing in this content constitutes a recommendation, or an offer or solicitation to buy or sell securities. Oak Harvest makes no assurance as to the accuracy of any forecast or projection made. Not all past forecasts or projections were, nor future forecasts and projections may be, as accurate as any forecasts discussed. Indexes like the S&P 500 are not available for direct investment and your results may differ. Past performance is not indicative of future results. Investing involves the risk of loss.
