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Curb Your Enthusiasm “Yields” to a Bull Market Buy | Stock Talk with Chris Perras, CFA®, CLU®, ChFC® - YouTube
Channel: Oak Harvest Financial Group
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hey i'm chris parish chief investment
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officer at oak harvest financial group
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or an investment management and
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retirement planning advisor located in
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houston texas and welcome to our
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december 3rd youtube stock talk keeping
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you connected to your money
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[Music]
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[Music]
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[Music]
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this week we're going to cover our first
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half 2022 outlook and throw in an early
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wild card of what our estimate for the
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year end will be too
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before we continue please take a moment
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to hit that subscribe button and the
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notification bell will ring so you will
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be notified when we upload new content
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the title of our first half outlook is
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curb your enthusiasm yields to a bull
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market buy
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first viewers a quick reminder that our
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second half 2020 market outlook was
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titled election worries breed investment
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opportunities
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that was followed by two 2021 market
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outlooks for the first and second halves
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they're posted on our website for all of
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those to see at
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oakharvestfg.com
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i will not recite them in their entirety
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as i think the titles speak for
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themselves
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for the first half of 2021 our title was
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you ain't seen nothing yet
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won by in the first quarter
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and our second half outlook was titled
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let the good times roll
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i will only quote
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a single sentence from that piece and
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that was this line written six months
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ago
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if pressed we see a seasonally strong
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fourth quarter 2021 and first quarter
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2022
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time period rally that can lift the s p
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500 to over 4 800 48.50 and we could
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approach 5000 in a blow off in january
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of 2022.
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now that was written back in june no
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revisionist histories no inching targets
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up every month
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that's what the data said way back then
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i'm going to pause here for a moment and
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let that sink in
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viewers our team first had a target on
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the s p 500 for a year in 2021 of 4600
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back in december of 2020. that was
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almost a year ago before every
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strategist and economist and every other
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tv personality came on financial news
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network and gradually moved their
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pensively bullish forecasts higher
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how did we see 2021 so early and so well
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as others were getting it wrong
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well we followed the data of this cycle
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since 2008 and 2009
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under qe or quantitative easing
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we did not data mine
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back decades to 1930 like some big
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well-known hedge fund managers we did
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not try to make analogies to periods of
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time when no one was living who was
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managing money now i admit we did that
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in march and april of 2020 back when
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covid first hit to see what happened to
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the economy and stock markets post the
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1918 spanish flu outbreak that killed
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tens of millions globally
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we did that research and afterwards
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called for a period like the roaring 20s
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almost six months before the talk was on
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tv
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and guess what our current stock market
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and economic response is almost
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identical so far which leads me to our
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first half outlook for 2022
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as clients and frequent listeners know
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one of my favorite sayings is it isn't
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different this time why because
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investors sentiment emotions and their
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subsequent behaviors are generally
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predictable
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over time moving from outright fear
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to begrudgingly acceptance very slowly
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at first over a long period of time and
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then to greed quickly
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but when things hit the wall many
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investors motion go right back to fear
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pretty quickly even in multi-year or
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multi-decade bull markets
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viewers i've studied all those economic
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theories that economists and other
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strategists talk about on cbc and fox
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news and write about newsletters i took
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all those finance and business classes
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at harvard where i got my mba and yes i
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attained the cfa designation and i will
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tell you this they are virtually all
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meaningless in managing clients money in
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public markets the eloquent dribble you
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hear on tv about gdp data or interest
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rate futures or what the dollar is doing
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99 meaningless and worthless mental
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dribble
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my dad had a name for it with the
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initials mmt standing for mental m fill
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in that blank talk
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politely it's eloquent verbal economic
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dribble did they help you in the second
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half of 2020 get long stocks or get back
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in the markets if you panic during covet
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and sold
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did they calm you down in the first half
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of this year if you were worried about
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political policies and still waiting for
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clarity
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i ask you did the government data
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clarify your views during the delta
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virus spike around july 4th of this year
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the tools we use to help us with our
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general outlook and to forecast do
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include the price of insurance on your
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portfolio they include where we are in
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the economic cycle both from a monetary
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and fiscal perspective and finally throw
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into the equation they include a lot of
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investor sentiment data including market
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flows option pricing in this cycle
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in investor positioning and psychology
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six months ago
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this led us to forecast
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and say if pressed we see a strong
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fourth quarter 2021 and first quarter
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2022 time period rally that can lift the
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s p 500 to over 4 800 to 48.50 and could
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approach 5000 a blow-off in january of
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2022. so now as we approach those levels
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and that exact timing what did our team
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sing our team is saying the first half
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of 2022 is a period of
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higher realized volatility no not just
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higher implied volatility which is
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covered in the options market
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even though we believe we're still in a
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bull market and that will remain alive
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and kicking in 2022 we expect the fear
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rhetoric and negative commentary on tv
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and in newsletters to continue and most
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likely pick up speed in the first half
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of next year as the markets experience
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its first correction of over say 10
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percent over the last 18 months how
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could this play out here's our best
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thoughts after this wave of positive
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enthusiasm is completed say over the
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next four to eight weeks and the 2021
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stock buybacks wind down we could see an
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air pocket down in the mid first quarter
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of 2022 this time period should give us
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the deepest percentage dive in stocks
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since the march 2020 lows
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should we approach a parabolic move up
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in the s p 500 of say 4 900 or 5 000 we
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would expect our first 10 to 12 percent
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correction all the way back to 4450 to
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4500 on the s p 500 in a very quick
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fashion call it over four to eight weeks
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while gut wrenching shouldn't incur this
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would only retrace roughly the last two
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months of our up move in a very quick
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fashion viewers please listen to me
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carefully if this were to happen all of
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this would be entirely normal just as
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the stock market and bond market moves
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have been for 2021 they've been normal
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this would be keeping with the normal
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behavior of our markets over the last 10
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to 12 years
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no different than the normalcy of us
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forecasting both the second half of 2020
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and the first half of 2021 or the second
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half of this year 2021. market moves
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well before they happen regardless
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how exactly the year end of 2021 plays
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out we see a substantial uptick in
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volatility in 2022 in the first half
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which should lead to a very bumpy ride
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over the cumulative next four to six
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months
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we would expect a very sharp rise in
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realized volatility with the often
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quoted spot vics rising back to say 28
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or 30 temporarily why
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i don't know as always i say in advance
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i can make up reasons just like everyone
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else what would be the tv anchors
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rationale for a very fast correction
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finally i don't know a few of my early
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guesses are this
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here's one the federal reserve hints at
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faster tapering of its balance sheet or
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raising rates earlier and some hedge
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flow blows up which is the dynamic we
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tend to love here at ocarvis
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two we get a new covid variant and
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investors get scared for a month or so
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third or fourth quarter earnings come in
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strong but companies warn of little
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visibility or margin concerns
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three maybe there's increased china and
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taiwan worries four maybe there's higher
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spike in winter energy prices and five
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and viewers this is the most likely one
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and i know it isn't sexy sounding here
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but here it is maybe it's normal
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investor profit taking after almost two
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years after the coveted lows as
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investors finally decide to book
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long-term capital gains in front of 2023
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income and capital gains tax increases
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i could see this as a response to our
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federal reserve moving faster at
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tapering or telegraphing an earlier rate
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increase at the end of their january
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meeting and of course this would
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probably also come just a few days after
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ray dalio from bridgewater hedge fund
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fame goes on global stage at a
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conference say in january and proclaims
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cash's trash for the fifth time in five
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years you know what that would be the
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exactly normal timing an ideal time for
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a sell-off to begin much the way it did
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in late january of 2018. viewers i warn
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you mr dalio is now an unheard of four
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for four making that cash's trash claim
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and announcing literally within days of
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our stock markets declining five to
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twelve percent
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yep four times in a row it's amazing if
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you're a tactical trading type keep your
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ears peeled and checked for your
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calendars for when he's speaking however
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listeners please hear me out just like
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we warned in late august of 2020 to curb
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your enthusiasm right in front of a
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normal pre-election sell-off a sell-off
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that took the s p down almost exactly
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ten percent if you were perfect to the
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day and hour selling and buying which no
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one is we told our listeners that this
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could be the last and best buying
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opportunity
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for the next 18 months in front of the
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election not after right now the
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investment team at oak harvest sees any
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steep and fast first quarter 2022
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correction in the s p 500 of say
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10 to 12
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down as a strong and potentially one and
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only buy and mold entry points for
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almost all of 2022.
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from say a low on the s p of 44.50 in
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the first quarter correction we see the
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market being able to achieve new
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all-time highs once again in the summer
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as volatility subsides capital
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investment accelerates and kicks in in
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front of stimulus and the normal
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pre-midterm election festivities begin
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let's call it the summer of 5075 to 5100
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on the s p and maybe a year end of 5400
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to 5500 if we're pressed right now
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our volatility crystal ball is a little
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murky in all these details here as the
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holiday heavy december and january time
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periods have yet to play out
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as for bond yields and government
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treasuries we think there is a slow
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upward bias on long-term rates for the
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first half at 2022 with the 10-year
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treasury reaching say 2.1 to two and a
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quarter percent let's call that higher
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but not harmful recall listeners the
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overall stock market has loved gently
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rising long-term interest rates this
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cycle
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the data doesn't lie your utility and
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staple stocks might not like it your
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growth at any price stocks might
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underperform for a while but the overall
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indexes in general have benefited
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by slowly rising long-term rates the
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last 12 years
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almost regardless of where we end 2021
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we see a positive year for equities in
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2022.
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our year-end percent return forecast
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depends on whether we see an exponential
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move up the next two months
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or not
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regardless of where we end 2021
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we expect to see a lot more realized
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volatility early in 2022. for those
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tactical traders out there if our
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forecast holds for the year of 2022 we
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could easily see a trough to peak move
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of 22 to 25 percent in 2022
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here's a little data to back up our
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forecast
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one
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huey effect is still positive for the
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first half of 2022. there can be little
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argument that the federal reserve
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monetary policy of qe that's
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quantitative easing has been supportive
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of liquidity and risk assets
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according to capital markets the s p
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500 has rallied on average
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19.6 percent per year during all four
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fed qe programs
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however
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even while the fed was out of the bond
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buying business the s p 500 has gained
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on average about 7.8 percent per year
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number two
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long-term interest rates look to gently
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rise higher in 2022 on either higher
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growth higher inflation or both
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or just less demand
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more data from since 1980 the s p
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500 has averaged a positive 19.2 percent
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when the yield curve rose by 50 to 100
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basis points year over year you heard
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that correctly the s p 500 has liked
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rising long-term interest rates over the
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last 30 years why because rising
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long-term rates are a sign of either
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strengthening growth
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higher inflation or both which has led
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to
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higher earnings by the overall market
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we expect the s p 500 to rise further in
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2022 as most companies pass on inflation
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to consumers
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many investors are concerned about the
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effects of federal reserve raising
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short-term interest rates immediately
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after they end their scheduled tapering
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which should occur sometime around the
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end of june of 2020 too
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according to research since 1994
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during the prior four fed tightening
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cycles the s p 500 has averaged a gain
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of 13.5 percent over the year prior to
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the first year fed rate increase if the
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fed were to immediately raise rates in
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july of 2022 that would suggest
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and equate to a triangulation the s p
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500 of just about 5 000 during summer
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given where the market stood around
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43.50 on july 4th of last year four
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volatility is measured by actual
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realized volatility is now around 6.9
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pre-covered that number had historically
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troughed around five and a half to six
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for a few months then risen quickly on
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corrections
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we expect this to rise early in the
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first quarter of 2022 as investor
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complacency has started to take over in
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near term and fomo fear of missing out
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over the last 18 months rally has become
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commonplace
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however and this is where the tea leave
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reading a crystal ball stuff or special
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sauce comes in
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given the hedging costs one is having to
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pay to ensure one's s p 500 portfolio
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out into the late first quarter and
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second quarters of next year is around
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26 or 27 well that's roughly four times
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what real volatility is so any quick
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spike up towards 28 or 30 in the vix
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which would equate to a roughly 10 to 12
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percent move down in the s p 500 well
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that correction would be quickly bought
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and should turn out to be the lone
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buying opportunity for the first half of
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2022.
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should the markets behave in that manner
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our team expects in the first half of
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2022 and we finally do get a minus 10 to
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12 percent correction oak harvest
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clients might expect to hear from your
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advisor
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and their teams in a matter of
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accelerating your roth conversions for
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2022
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to earlier in the year much the same as
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we recommended in april of 2020 and then
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again in the first quarter of this year
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on the market's brief pullback newer
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clients would likely see an acceleration
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of our investment programs as our team
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likes to accelerate purchases when large
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short-term volatility spikes occur
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viewers give us a call here at ocarvis
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and ask to speak to one of our advisors
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let us help you craft a financial plan
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that meets your retirement goals and
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needs first in your agreed second call
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us here at 877-896-0040
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we're here to help you on your financial
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journey into and through your retirement
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years i'm chris parris and have a great
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weekend
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[Music]
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