Stock Talk - 2024: A Year of Storms and Volatility?

Starting point is 00:00:00 Okay, investors, Stock Talk with Chris was down, but not out for the week of May 24th. Why? Well, Oak Harvest Little Town of Houston here in Texas suffered a brief, less than hour-long, but terribly disruptive spring thunderstorm that rolled straight down to 90 through Memorial, the Heights, the Montrose, and the downtown financial area of Houston. We had 70 to 100 mile per hour straight-line winds, and almost one million Houstonians were without power for a day, $750,000 without power for two to four days, and almost 75,000 still without power after a week. Our A-plus operations team led by Chris Ayers piloted O'Carvus through the logistics of the power outage and got our team back up and running at full strength as quick as possible.

Starting point is 00:00:45 Thank you, Chris, and the rest of your team. So that storm and the outbreak of storms throughout the Midwest causing deadly tornadoes and the rest of our country this year got me thinking about the topic. It got me thinking, is 2024 going to go down in history as the year of storms? And I'm not talking about just the weather. Investors, whether the storms are weather-related, sun or solar fare related, politically related here or overseas, war-related in Ukraine or the Middle East, or financial market-related. Is 2024 destined to be the year of storms?

Starting point is 00:01:19 But before we continue, I want to give a shout-out to the entire Oak Harvest team. As a few weeks ago, the USA Today ranked us is one of the best financial advisory firms for 2024. The award is given to the top registered investment advisory firms in the United States based on two criteria. First, recommendations from individuals among the 25,000 financial advisors, clients, and industry experts. And second, growth in assets under management over 12 months and five years perspective. I personally am looking forward to helping us move up this list over the coming years by taking care of our current and future client base. Investors, clearly the first five months of the year have started off on rocky footing in the areas of weather, politics, and military conflicts. Maybe it's just the

Starting point is 00:02:04 energy in the universe of the peak solar cycle, 25, that gave us those beautiful auroras as far south as Texas after the May sun eruptions, but something seems a bit different here in 2024. I don't know what it is. However, with all the turmoil in those areas, the one area is that most media commenters to predict rampant volatility for 2024, but it's not really presented itself here to date in an abnormal way is, yes, the financial markets. Here to date, volatility in single stocks has been pretty high, particularly around earnings releases. Look no farther than the reaction to the upside when Walmart reported earnings about two weeks ago, and then to the downside when their competitor target reported earnings only about a week later. Take a look at Walmart's chart

Starting point is 00:02:50 for the two weeks into and through their earnings report. This is the the 60-minute price chart of Walmart, hitting a new all-time high after their earnings report. Then take a look at the same 60-minute price chart on Target, when they reported and cited a weaker consumer. Target stock is almost 40% below its all-time high. There was a high in the summer of 2021, near $265 per share, post the COVID reopening spending boom. Very dramatic moves at the single stock level in very different directions. The stronger getting strong, and the weak or laggards in the stock market continue to lag at the single stock level with huge volatility dispersion. Meanwhile, investors, the S&P 500 index sits near its all-time high, near 535.

Starting point is 00:03:36 It's up around 10% year-to-date with only one minus 2.5% down move to start the year, and another minus 6% down move a few weeks ago as pullbacks with very little volatility a year to date. When we zoom out and look at things at the index level, financial market volatility has been declining, in almost every asset class in 2024, and in many assets, it's at the lowest levels or near historic low levels X the Great Volatility Collapse, but 2017. Let's start by looking at bond market volatility, which we've discussed many times in the past. The measurement most of us use, and we like to look at is the Move Index, which measures broad treasury bond and interest rate volatility. Remember, investors. This is where a collateral for leveraged investors starts. Take a look at the

Starting point is 00:04:22 daily chart and the Move Index. It peaked in March of 2003 with the collapse of Silicon Valley Bank and it's been more or less down and to the right for 15 months. Remember investors, when overall treasury volatility is declining, this allows hedge funds, CTAs, and trend following investors to take on additional leverage and margin up their returns by buying more stocks, more assets, whatever they're managing. This is a good thing until it goes too far and it is. isn't. Investors, when the Move Index is rising, leveraged investors have to de-risk and sell securities out of their portfolios, even if they don't want to do it. It's the way their risk models work and the way their prime brokers make them behave. Take a look at the weekly chart on the Move Index

Starting point is 00:05:07 going back five years, down and to the right. Now, below levels last seen near the short-term top in stocks at the end of 2021. This is still a bullish trend for stocks. Everyone likes to talk about stock volatility and talk about the VIX index, even though it by itself is not traded nor predictive. Well, here it is the daily chart of the VIX index. And here is a long-term monthly chart of the same index. As one can see, X the low volatility year of 2017, when the Trump tax cuts were being anticipated, spot volatility as measured by the VIX index rarely, if ever, gets below 12 for more than a few days. However, that doesn't mean it can't stay near 12 to 15 for months or quarters, or even years, as was the case of 2012 through 2015. And secondly,

Starting point is 00:05:57 it doesn't mean you should sell all your stocks in hide-in-cash. However, it has meant that your marginal percentage return from that point on has likely been lower than when volatility is 20, 25, or 30 or higher. Take a look at the volatility chart of the NASDAQ 100. This one's called the VXN Index, down and to the right. Now take a look at the chart of the Russell 2000 small, Calf-Cap Index, also known is the RVX Index. Even it has shown the same consistent downtrend the last 12 to 18 months. Real interest rates have been rising, which has hurt the highly leveraged and unprofitable companies that most often sit in the Russell 2000. However, this index could become leadership as soon as the Fed or the markets indicate the short-term rates are

Starting point is 00:06:43 heading lower, not out of desperation by the Fed, but by a relaxing of financial conditions on smaller companies. Investors, before I end, I want to leave you with some more data. I found extremely useful at divining the possible future outcomes of the overall market. Here once again is a table of forward volatility futures. This is not the VIX Index. These are futures on forward volatility, and these can be actually traded by investors. I watched this like a hawk, and it was instrumental in our team forecasting significant rallies post COVID in March of 2020, as well as the rally that started in late October of 2003 last year, when after declining about minus 10%, stocks started pivoting higher while many others were talking crashes and recessions. Investors right now,

Starting point is 00:07:30 as it has for the past eight to 10 months, forward volatility markets are saying that most of 2024 should remain calm and that the only significant spike in volatility might come in advance of the presidential election into mid-delayed October. You can see that by the rise in the price of the Vol Futures in the October contract expiration date, where it now sits around 18, while spot volatility is around 12. Should this be shocking news to investors who study history? Nope, it shouldn't be. As far as the markets have followed a very standard presidential election cycle path since their lows in October 2022 through today. Those same cycles call for a summer peak between July 4th and August expiration and about a two-month move down into pre-election,

Starting point is 00:08:17 which historically is set up a great buying opportunity in most election years. Will that happen again in 2024? I don't know, but we're not betting against it as so far the old normal continues to play out in 2024. For those families still hurting from the storms of 2024, be it weather-related or politically related, or thoughts and prayers are with you and your loved ones. For investors or retirees who've been focused on the storms on TV for 2024 and feel anxious or paralyzed so far, those storms have not presented themselves in the overall financial markets at the index level. However, even if you're uncomfortable with wider range of possible equity outcomes, the Ocarbust Investment team has launched a new strategy that retains

Starting point is 00:08:59 the ability to go long stocks, short stocks, as well as buy partial hedges and a shock absorber as such for your stock portfolio. Information on this exciting new strategy can be found on our website, OcarvestFunds.com. From the whole team here, at Oak Harvest. We hope you had a great Memorial Day weekend and hope you have a blessed weekend this week. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you,

Starting point is 00:09:44 and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.

Stock Talk - 2024: A Year of Storms and Volatility?

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.