Second Half 2021 Market Outlook | “Let the Good Times Roll” | Your Retirement Portfolio and the Stock Market

 

Welcome to Oak Harvest Financial Groups second half of twenty twenty one. Stock market outlook. The purpose of this video is to help you sift through all the noise out there, what you’re hearing on television, what you’re reading online, so much information being thrown at you.

It’s our job to help tune out the noise. Look at the data and then use our experience, our skill, our team to do the research and convey to you what it means for your portfolio and more importantly, what it means for your retirement.

Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®), professional host of the Retirement Income Show and certified tax specialist. So we have a special guest today. It’s our chief investment officer, Mr. Chris Perras. And we’re going to go through a lot of the data that we talk about.

Whenever you’ll hear me say behind the scenes data, this is what we’re seeing kind of behind the curtain. We don’t get our information from a lot of the mainstream news sources. Obviously, as a financial planning firm, we need to have a wider grasp on not just the current economic numbers, stock market data, but also need to have a context in regards to how the markets are performed throughout history in and similar or different economic conditions. And more importantly for you. What this means for your retirement, what this means for your portfolio over the next six months.

And if you ever want to reach out to us, if you have questions, there’s always a link below. You can schedule a phone call with one of our advisors. OK, Chris. So we’ve been talking about this for some time, actually, by the time you view this video.

We will have the second half podcast already on the website. So we’re going to go through the charts and some of the more detailed information that Chris discusses in the second half podcast. But if you want to listen to the second half review, if you simply go to OakHarevestFG.com, www.OakHarvestFG.com, click on

Investment Management. The first one down here, Stock Talk podcast. Scroll up. You should be able to find it here and then if you want to see any of our previous. Any of our previous second half, first half outlooks for 2019, 2020, we keep them over here as well on the website.

So just go to the investment management tab podcast. Previous outlooks. And the purpose of all of this information is to keep our clients and you prospective clients or just viewers who are new to Oak Harvest Financial Group informed, educated, up to date with what’s going on.

So you can make better decisions with your money and your retirement. We’re going to lift the veil, kind of get into some of the numbers, the data here, see what we’re seeing and let you know what we expect the market to do over the next six months.

Now, of course, there are no guarantees. Investing involves the possible risk of principal and the possible loss of principal. But what our job is, is to analyze, to research, to sift through all this data and help you understand how to make better decisions when it comes to your money.

And, of course, if you’re a client or a prospective client thinking about working with us, we do all this for you. This is what we do, managing the money as far as making the decisions about where we want to be invested, what position sizes, how we want to be allocated.

And we’re going to start here with this big chart. So historical context, Chris, what exactly is this chart? Explain to explain to myself, explain to the viewers what this chart is. This is the S&P 500 for the last 90 years.

So all sorts of economic cycles, decades and decades of data. And what you’ll see is over long time periods, the trend is up until the right. Yes, there are time periods, 10 years at times when you’ll go sideways.

The most recent one was back, you know, after the Internet bubble, two thousand through about 2010 or went sideways. But over the long time, just as our economy has grown, stock market has grown. And so to provide some context here, there’s only been three times in US history where the stock market has lost money.

Three consecutive years. The stock market has never lost money in four consecutive years. But the Great Depression, World War two and the dotcom bubble in 2001 and 02 were the three periods in time that the stock market lost money in three consecutive years.

So what this is you’ll hear, especially if you’re a CNBC watcher or if you watch any type of Bloomberg Financial News, you’ll hear the pundits and the analysts talk about long term secular bull market. So what that means is secular is simply a term when it relates to the stock market, where over long periods of time, multiple

business cycles, the stock market is increasing in value. But throughout the secular bull market, we can have a cyclical so a cycle of a bear market, we can have a 20 percent correction within a secular bull market. People remember in 1987, October, stock market crash and market went down over 30 percent.

You can barely see that on the chart. That was within a secular bull market of multiple years afterwards. It almost doesn’t even show up. Now, granted, I remember that time period. It felt horrible for the few months that the market was down and the economy started to come back, happened again after 9/11.

Stock markets were down considerably. That was another one time event. So far, Covid is acting like a one time event. Markets were down for about a month. We went through a recession and stock market was down 30 percent in four weeks.

Federal Reserve came in. Our government has started some programs. Economy is expanding and we’re back in a bull market. So we see in this little box right here, this is a secular bull market from 2000 through 2013, from 2000 to 2009, that’s considered the lost decade.

So that would have been an absolutely horrible time to retire because you’d have lost money consecutively in 2000, 01 and 02. And then right when you came back up your portfolio value 2008, the bottom fell out from underneath you.

So those who retired during that time frame, if they needed large income distributions from their portfolio, it’s highly likely that they had to go back to work. Someone who barely needed any money from their portfolio, they could have withstood that.

That’s the big difference. We talk about it all the time on the radio show, in live events. When I do public speaking, when we enter that retirement phase and we start taking money out of our portfolio, the dynamics completely change.

So it’s not just about accumulating, accumulating, accumulating. Once we start distributing, those are guaranteed losses or reductions in portfolio value. If you combine those with market losses, especially in consecutive years, you really start to jeopardize the portfolio. But we see here, we see a break out.

And this is a long term chart. And it’s just one element. It’s it’s it’s not a be all end all of anything. But we do see typically the typical trends here throughout the history of the country. We have a bear market here, secular from thirty seven, nineteen thirty seven to fifty.

And then we get a break out for 16 years. We have a 14 year secular bear market where literally go sideways with some ups and. Downs then we get a break out in 1980 for 20 years, a secular bull market the last 20 years.

Here we have about a 13 year secular bear market with some ups and downs, of course, but now we just broke out. So just going by the chart and there’s tons of other information out there, Chris, but just go make the chart and maybe you can add to this some additional information.

But it looks like we are entering or have been in for a few years, a longer term secular bull market. Yes. The data would say we’ve been on a longer term secular bull market since around twenty thirteen. Covid interrupted.

It gave us a very quick recession, the Federal Reserve responded. We’re back in a secular bull market within these secular bull markets. You can have 20 percent. I hate to say corrections, but that’s what they’re called, 20 percent down moves.

They’re they’re pretty normal. And you can continue up into the right. So looking at the chart, we have some historical context of what long term bear markets look like and how long secular bull markets last. I had an appointment recently with a couple, and we’re starting to hear this more and more so we don’t talk politics on

this channel. And believe it or not, politics have very, very little impact on the stock market. The stock market really cares about one thing. If you’re a company, are your margins growing? Are your profits growing and is your revenue growing?

Technically, that might be three things. But long story short, the market only cares about if you’re a company and your publicly traded. Are you making money and are your profits expected to grow over time? So stock’s price is nothing more than the discounted rate of its anticipated future cash flows.

So if profits are growing and they have more and more money coming in and there’s expansion there, the stock is going to go up in value regardless of who’s president, regardless of what maybe inflation fears are or what the corporate tax policy is going to be.

So I want to I’m hearing a lot essentially is what I’m getting at from clients. Unemployments yttrium. I’m a little scared to invest right now. I feel like it’s a bubble. I feel like the market’s going to go down.

Of course, we don’t have a crystal ball. We don’t know anything. One hundred percent certain to be true. But as we go through this and you start to understand what we’re looking at behind the scenes when we’re making investment decisions, when we say we feel pretty good about the next six months in the market, there’s reasons for

doing so. But I want to provide some additional context from a historical perspective. So if we come over here to this chart, the title of this piece is I Don’t Want to invest now, because and what it does for is if you on this side, so right here.

So it shows in green the value of the Dow Jones Industrial Average the year and then what was going on. So in nineteen thirty four, you could have said, well, I don’t want to invest because we’re in the middle of a depression.

Well, by nineteen thirty nine, the Dow was up almost 50 percent. But then war starts in Europe. Ten years later, the Dow goes from 150 to 200. Nineteen fifty we have the Korean War. Well, I definitely do want to invest now.

There’s a war going on again. Well, the Dow went from two thirty five to six seventy nine over that ten year period. Now we will have periods where you go to three, four or five years possibly of not having a ton of gains.

But it’s important to have this long term outlook when we’re investing in the stock market is not about getting rich quick. It’s not a gambling mechanism. The stock market over history has proven to be one of the most likely places for you to make money if you have a patient, disciplined, intelligent approach and you manage risk appropriately

. So we get all the way out here now. And six seventy nine, we look nineteen in nineteen sixty nine, eight hundred on the Dow. This was we posted this a couple of years ago, but the Dow was up to twenty three thousand three.

Twenty seven as of twenty eighteen. Where’s it at now. Thirty four thousand thirty four thousand, give or take as of recording this video. So so we’re going to come back over here. So, Chris, what is this chart? This is the Federal Reserve’s balance sheet versus the S&P.

Five hundred. And this is taken straight from the Federal Reserve of St. Louis website. That’s a great correlation. It basically says if the Federal Reserve is providing money to the economy, it’s really hard for the S&P 500 to have material downside.

The Federal Reserve was actually tightening monetary conditions back under President Trump in the twenty seventeen, eighteen time period. As you see here, the stock market was able to overcome that because of the Trump tax plan offset that. But once the Trump tax plan was was put in place.

Stock market did have some some trouble there in twenty eighteen. But ever since the Fed has kind of come to the rescue for Covid back here in early 2020 stock markets. Of rally, the economy is his pop right back to pretty much trend line to where it was before Covid.

So if we blow this up here, what we actually what we actually see the red line is the stock market. So we see this big peak right here. This is the tail end of the Trump tax cuts not expiring because they’re still in place as of the recording of this video.

But this was the big rally at the tail end of the rally that the market had because of the tax cuts. Now you see the blue line. The Federal Reserve begins to taper. They begin to contract the money supply.

The balance sheet is shrinking. So what does that mean? The balance sheet is shrinking. When the Federal Federal Reserve prints money, essentially they buy government bonds or they buy securities. Now they’re buying all types of things. Anyways, when they buy those things, they go on to the balance sheet as assets.

So they print money. We see the balance sheet increasing. When they contract the money supply, the balance sheet decreases. So we see this period where the market literally goes sideways there for about 18 months. Once the Federal Reserve says, you know what, we contracted a little bit too soon, we said we’re going to raise interest rates too

soon. And they actually began raising interest rates too soon. They start to loosen markets, start to do real well. Coronavirus hits here. And of course, the markets drop, the Federal Reserve jumps into action. And ultimately the US stock market and global markets as far as that’s concerned.

They follow the money. In fact, you can look at this chart and the stock market. The Federal Reserve was starting to taper back when Donald Trump was president back in 2007, 16 and 17. That’s the blue line flattening out.

They were tapering. They were still providing liquidity to the market, just not as fast. Stock markets still did really well. It was once they started taking money out of the economy that the stock markets that started having trouble.

So everything you hear on the news about when are they going to start tapering, how much it shouldn’t be, that it’s really how far out in the future is that curve going to start to turn down and that should be next year.

So the Federal Reserve is currently printing about one hundred and twenty billion dollars a month. Now, at some point, when the Fed begins to taper or contract the money supply, it is quite possible that we’ll have a 12 month period, an 18 month period of maybe some ups and downs, but overall pretty flat.

We could see that correction that that a lot of people are concerned about happening now. In our opinion, it’s just simply unlikely, not just because of this, but this is a very large reason. Pretty cool chart looking at the relative relativity between the stock market performance and the Federal Reserve balance sheet.

And with the balance sheet coming up here, in our opinion, it’s pretty likely the stock market follow suit. OK, Chris, what is this? This is a great table that shows the twenty six bull markets that the stock market has been in since the Great Depression in 1929.

So these are time periods where the market went up before it had a 20 percent correction. There have been twenty six time periods. People are very concerned. Well, I missed it. The stocks are up so much. The average bull market you see right here from the bottom to the top, the average of the twenty six bull markets

was almost one hundred and fifteen percent. And people keep saying, throwing the word unprecedented. I want to make unprecedented a four letter word after the last year. They keep saying this is unprecedented, Christine. I shouldn’t invest all sorts of excuses.

If you look at this table the last 12 months since the bottom last year of 15 months, ranks as number 11 out of twenty six. It’s not unprecedented. It’s barely in the top half. And this is this is not the secular bull market.

Correct? This is more than twenty. Twenty six cyclical. Correct. Correct. Yep. Average being one hundred and fifteen percent thereabouts. So the period from to the the first secular bear market that we went through about 10, 15 years ago, there were two cyclical bull markets inside that secular bear market.

So hopefully that’s not too confusing. But that’s what these are identifying as the bull market. Essentially, that’s a little bit more short lived before. There’s some type of reversal, of course. But twenty six bull markets, the average of those bull markets is one hundred and thirteen percent in one hundred thirteen and a half percent gain.

And you said this one, we are currently in ranks eleven out of twenty six. Eleven out of twenty six. We’re up about 90 percent of the absolute bottom in March of two thousand twenty last year. OK. OK, so very interesting information here.

This is think of there a lot of times something may seem good, but on the that’s only on the surface. There’s no substance to it. And a lot of times. Things look good and there is a lot of substance to it, and maybe that’s not the best metaphor, but that’s really what this is telling us.

So let’s talk to you about this chart. So this this chart is a chart of the breadth of the stock market. And by breadth, we mean how many how many companies in the stock market are doing well, how many stocks are outperforming or are going up and uptrends.

First, you might hear on TV the Fang stocks are doing really well or the energy stocks are doing really well. Well, Fang is five or six names depending on how you lump them. And if if only Apple, Facebook, Microsoft, if only those five or six names are going up, the stock market might be going up.

But underneath the surface, things aren’t great. A lot less says things are great everywhere because it’s not just fang. It’s not just energy. It’s not just utilities. It’s almost everything in the stock market is working. Essentially, what this is saying is there are there’s not a small amount of stocks carrying the overall performance of the market.

It’s a wider and wider breadth of companies that are all performing well. And we’re starting to see higher highs and higher lows as well. Charts to tell a story. And when you look at the the if a low is here, then your next low is here, your next lowest here.

OK, we’re starting to see a pattern here. And in an advancing market, when we have higher lows being established and higher highs being established, not just with one group of stocks, but a large group of stocks, it’s it’s worth paying attention to.

Yeah, this this is a chart that is exactly the opposite of one of the pet peeves I have listening to the TV commentators is when they talk about it’s a stock pickers market. This chart will tell you, no, it isn’t.

Everything is going up. Everything’s OK. What you don’t want is you don’t want this line going down and to the bottom of the page and the stock market going up. That’s when you start to you should start to worry about a recession coming up.

You should start to worry about things happening like twenty seven, twenty eight, when the only stocks that were going up at the end of that bull market were energy and commodity stocks and technology stocks, retail stocks, housing stocks, everything else had already started going down a year before the stock market really rolled over in two thousand eight

. OK, so moving on here, we’re going to start to talk a little bit about volatility. So we hear volatility all the time in whether you’re reading or watching television, listening on the radio. But what is volatility? Most people don’t know.

The volatility is actually tracked and it’s measurable. It’s quantifiable. If volatility is not just, oh, the stock market’s going down, things are going crazy. I think that’s a kind of a catch phrase sometimes for when you turn the the news on and you see the market had a bad day when things are volatile.

Well, things could be volatile and the market’s up two percent as well. That’s still volatility. So this is a chart that looks at the VIX, as we call it, and it is a measurement of volatility. What is this chart telling us?

This chart is telling us that during times of great panic, during the Great Recession in 2008, 2009, volatility spiked over 50 during the coronavirus. Virus’s short term volatility spiked over 50. The chart also tells us that over long periods of time during economic expansions, volatility tends to go to around 12 to 13 on the low side, 12

to 13. You know, it happened here during 2013, you know, during Obama, it happened during Trump in 2017. In fact, I think it got to nine during the Trump tax plan, the lowest ever. And everyone was happy at the same time.

And people are saying, well, I want to buy a pullback. The pullback never came. So and you can see where volatility is about right now. Actually, we have a better chart here. Hit that one up there. Yeah. So this is the five year VIX chart.

So going back five years, you can see here’s twenty seventeen where volatility was real low hit nine there on the low side. Twenty eighteen volatility was high because this was when the Federal Reserve there was concerns about raising interest rates and President Trump was instituting the tariffs.

The trade war with China. So volatility spiked. Tremendous surge here in Corona. Twenty twenty. And now we start to see the downtrend. So if we kind of overlay these two charts here, we see historically now this is going back over 30 years.

But we see very clear patterns, very clear trend. And with where volatility is right now, right now, we’re at about 16 at 16 on the VIX. If we hit 12, if we hit 11 on the. What does that mean for the market, roughly?

So I run a calculation on volatility and out months if we hit, but if we hit 12 on the VIX around Christmas time, the beginning of next year, that equates to the S&P five hundred over forty seven hundred and where we are now in the S&P forty two twenty five.

OK, so it’s about a 15 percent upside. Just simply looking at the volatility calculation. And that actually happens to coincide pretty well with looking back historically at bull markets reaching one hundred and fifteen percent on average. We’re currently at about 90.

Looking at the returns after Obama was reelected the second time, the market went up. Thirty eight percent over the next 15 months when Trump was elected, it went up almost the exact same amount. Thirty eight percent from the Election Day to the next first quarter, 15 months later, you know, on that trajectory, the S&P five hundred in

the first quarter of twenty twenty two is somewhere in the forty seven hundred plus range. OK, so you’ll hear a lot on TV people talking about the yield curve. What exactly is the yield curve? Well, the yield curve is nothing more typically than the spread between what interest rates are paying on the 10 year Treasury.

So 10 year government bond and two year government bond. It could be different timeframes, but the standard yield curve that people talk about is the spread between 10 year interest rates and two year interest rates. So, Chris, what is this chart?

Just a quick summary. This is the summary of the difference. This is the tends to to yield curve and no model is perfect. But, you know, we came up, the investment team did with, you know, what does this look like last year when we were looking at the election and it looked like, you know, when President Obama

was looking to get reelected. And sure enough, this chart, the yield curve, is showing us that it’s playing out very similar. When President Obama got elected for the second time, the yield curve steepen by almost one hundred and fifty basis points.

So there was a rush to sell bonds. The economy was going to get better if the Democrats were going to spend a lot of money on health care and other programs. So people went and they sold bonds. And then later on in 2013, people kind of exhaled and settled down and they thought, OK, inflation’s not going to

be that great. And the yield curve started to flatten. Similarly, when President Biden was elected, the exact same thing happened almost to the exact same basis point move. And seasonally, it looks like the air is starting to come out of the inflation concerns around the same time during summer.

So we just look at these things, you know, where where has this happened before? And if so, what groups and what stocks worked in this kind of environment? Also, what are the similarities? What are the differences? But it’s eerily similar.

So what is the percentage uptick here? It’s one hundred. It’s one hundred and forty seven basis points. And then this one here, when I measured it was one hundred and thirty five, but I didn’t take the whole the tops.

So it’s probably 150 basis points. So very, very similar. So the next chart we have here is a comparison between growth stocks vs. value stocks. So, Chris, what do we have here? More importantly, what is this told us over the past 20 years?

And what is, you know, what’s going on up here? What does that tell us? This is a ratio of growth stocks versus value stocks. So as you see, since for the last 15 years in general, you’ve wanted to be in growth stocks, which makes sense because interest rates have come down.

So when you vep when you do a valuation of free cash flow, you do a net present value. If you have a company that’s growing at 20, 30, 40 percent, its value is really in those years out, 20 years from now, a value stock, slower growth.

Most of its values right now are next year. So this is just a ratio. And what you’ll see is when Covid hit, there was initially a run to grow stock investing, things that were truly growing organically. But as soon as the vaccine came into the equation, the big institutional investors started to run over to value stocks.

And they saw the same chart we saw with the yield curve steepening. And when the yield curve steepening, you want to buy value stocks, financials, slower growth, higher, more highly cyclical. And what you’ll see is the ratio growth stocks have underperformed for about nine months, up until about four to six weeks ago, four to six weeks ago

. Growth stocks started to outperform value. It’s just kind of a trade off, a balancing act. Do I want to be a little more value biased or do I want to be more growth and biased for the second half?

People ask, well, where do I want to be? I prefer to be on the growth side because I think that works better in twenty twenty two. But for the second half of this year, I don’t think it matters.

I honest. Really don’t I think most everything will work the second half of this year beyond the second half of this year if the economy starts to slow down next year? What are people really going to want to own?

And they’re going to want to own consistent growth stocks. You know, pizza companies that are rolling out franchises at 10 to 20 percent a year. Not the big equipment company that the piece of equipment costs one hundred thousand or two hundred fifty thousand dollars.

But over the past 15 years, as we can see here, growth stocks have outperformed value. It’s actually fairly rare over long periods of time. OK. What do you think as far as risks, risks? Well, even in a bull market, even in years like this, normal pullbacks in the market happened.

They they aren’t the 10 percent that people talk about. They’re normally in the first year of a of a presidential term like this. They’re five to seven percent. And they last three or four weeks and they’re quick and fast.

What could cause it? You know, the Fed comes out and says we’re going to taper faster. And some hedge funds or hedge funds or too leveraged. And they have to take down their leverage at the end of the quarter.

You know, that’s that happened in in March. It’s happened a number of times over the last two or three years. It’s just it’s positioning of how far on one side of the ship are people. And if they’re too far, you know, the margin clerks at the big brokerage firms basically say, hey, you have to sell.

And the rest of us, retail investors, retirees, we’re in the way for a couple of days. So wrapping it up here, we feel really good about where the market is. If you would like to have a conversation about your portfolio, about where you’re at, if you have any questions, there’s always a link in the description down below

. You can schedule a visit. Hit that subscribe, bud, so you can stay connected. Hit the thumbs up. If you didn’t like the video, hit the thumbs down and feel free to comment down below if we have a chance to respond.

Long as it’s not personal advice. And we look forward to seeing you on the next video.