Stock Talk - 2H2026 Market Outlook Summit Highlights: The Market Is Up… But Volatility Isn’t Over

Starting point is 00:00:03 first read it today and rethought about it from the first half. I had to think about it for a second because sometimes it's hard to be a bull rider. Oh, I get it. The market, stock market being a bull rider. And Chris, I have to say, I mean, you did a pretty good job as far as what the expectations were heading into this year and then what actually transpired. So talk a little bit about what you meant in the first half outlook. And this is still on YouTube, guys, if you want to go check this out, our first half outlook sometime later.

Starting point is 00:00:31 What did you mean when you said, bull is sometimes harder to ride. Thanks, Troy. Yeah, so we sit down. Charles and I have been doing this for years. I guess I'm kind of the market historian on the team. So I study a lot of cycles. They try to come up with a catchy title for it.

Starting point is 00:00:49 And just so happens, 2006, when we looked at all the data, whether it's second year presidential terms or economic cycles, it looked like it would be a volatile, at least first half. So we came up with the title in some years, being a bull rider is harder. So, you know, we thought earnings were going to be good, the economy would be resilient. There were a lot of pro-tax policies coming from the president

Starting point is 00:01:18 and the White House that would help earnings and help the consumer. I thought that was there. However, there were a lot of things kind of behind the scenes that were little warning signs that volatility. in the first half would be higher than normal inflation was picking up even before the Iran conflict. We saw that. I kind of message it.

Starting point is 00:01:41 It got worse because of the Iran conflict, but that was kind of the spike of it. So, you know, the market dropped, I think it was almost exactly 10% in the first quarter and ended the first quarter down almost exactly 10%. And then we started, I guess, to solve the Iran conflict. back at the end of March, and the market, like, immediately snapped into earnings mode. We're going to look at, you know, companies that are growing fast and focusing on fundamentals and pretty much V-bottomed and rallied, you know, off the bottom, almost 21 percent in a straight line over two months.

Starting point is 00:02:18 So we weren't expecting that, you know, out of the gate, but that's the kind of move we were thinking about for the first half. You know, looking at the second half of this year, I tried to come up with catchy title, and I have to say the same thing. It looks the same. Some years, being a bull rider is harder, and we're going to talk about the reasons that are both headwinds and tail wins,

Starting point is 00:02:43 but I would expect volatility to continue for the remainder of the year, hopefully not as much as it was today, but I would prepare for volatility. The economy's okay, but there's just things out there that are kind of bubbling up. matter, right? earnings matter. So we have volatility is not, volatility is normal, and earnings matter. So Charles, when Chris put out the first half outlook and we talked about expected

Starting point is 00:03:14 volatility, but at the same time, we saw a lot of positive currents supporting continued market growth. We talked about earnings from corporations. We talked about economic resilience, and we talked about the expectation that interest rates would come down likely sometime in the first half of the year. So out of those three economic resilience, corporate earnings growth, and interest rates, which they have not come down, we missed that one, where we are today compared to what we thought at the beginning of the year, which one of those three surprises you the most where we sit now? Yeah, great question. Thanks, Troy. It probably is not just the resilience of course. corporate earnings or corporate profitability. It's the fact they've just continued to grow

Starting point is 00:04:00 at a very fast pace. That's so critical to how we view the world and how we make fundamentally driven, earnings-driven investment decisions. Companies have done a fabulous job of really honing in and taking advantage of the three things that we always talk about that drive corporate profitability, sales, margins, and return on investment.

Starting point is 00:04:25 capital. And we've seen a handful of secular growth themes, particularly, you know, within the technology sector, but it supported other areas, including utilities, energy, and some of the industrial sectors of the economy that have led to very resilient and improving rates of growth in sales. Corporate profitability is held up. Astounding. well, right? And so a large portion you hear about productivity gains and what does that mean? If you think about it on a big macroeconomic standpoint, it's the amount of GDP you're able to get per unit of employment that you put into it. How much do you get out of the amount of labor or effort you put into it? A lot of the productivity gains have accrued directly

Starting point is 00:05:19 to the corporations that are employing, you know, you know, streamlined operations, better buy chain management coming out of COVID, use of technology to improve corporate profitability. And man, there's a lot of opportunities for these guys to reinvest in the best portions of their business. And they've just created this flywheel effect that's led to this very robust earnings backdrop that has really held everything together. And to take a little bit of a different view, although we've had all of these other issues take place, not the least of which was, you know, a war, market's been very resilient. Why? Because it always falls back upon earnings. And that's, again, getting back to the theme. So earnings, resilience. Chris, I know you kind of feel the same way. Tell us a little bit about that. How you feel? Yeah, no, I'm right with Charles.

Starting point is 00:06:13 I think unless something strange happens in the next week, the second quarter will be the sixth consecutive quarter of double-digit earnings gains in the S&P 500. And I think it's either the second or third, over 20%, which outside of coming out of recessions never happens. So the earnings picture has been extraordinarily strong the first half at 2026. We continue to expect it to be strong for the year, but particularly in the upcoming couple of quarters. Good news is the same primary driver of the stock market performance over the past, let's say, six months, just isolate that time frame, is still in existence today and is still likely to drive the stock market higher, potentially drive the stock market higher over the coming months.

Starting point is 00:07:04 Yes, exactly. Well, side. Okay, so Chris, now what about a headwind? What's something that could counter Charles's point about earnings growth? It's on the same thing. It would be peak earnings growth. So far, it looks like it'll probably be the third quarter of this year. Okay, so let's define peak earnings growth. And that's rate of change. Okay, let's define rate of change. So, yeah, in the stock market, you know, the stock market rewards, I mean, bad, goes to poor, goes to good, goes to better, goes to great, right? It doesn't reward great goes to good.

Starting point is 00:07:38 Yeah. And it just, it has a really hard time because then it thinks good goes to mediocre, mediocre goes It extrapolates linearly. And right now we're growing earnings, not exponentially, but at an accelerating rate. I think fourth quarter was in the high teens. First quarter was 20.5% or something like that. This quarter is supposed to be 21 and a half percent. And then you get to the third quarter, and it's in the 23 and a half, 24 percent,

Starting point is 00:08:12 year over your rate of change. but then you get on the other side of that and it starts to slow down just because the comps get harder you know it's just hard to grow earnings in an economy at you know 20% plus so to Charles's point corporate profits are still growing yes but to your point they're not growing at the same rate that they were previously that would be in the projection for the third quarter would be the peak growth rate. Therefore, the fourth quarter would be a slowdown in the high teens. So imagine, let's say you own a private investment and it's a business that you run. Let's say it's a small company that sells widgets and you have 20% growth this quarter. 22% growth, let's take it four

Starting point is 00:09:06 quarters ago. You have 20% growth. Then you have 22% growth. Then you have 26% growth. And then this past quarter, you had 24% growth. So that rate of change, you went from 26 to 24. Even though you still grew at 24%, the stock market is saying, hey, guess what's happening here? They went from 20 to 22 to 26, now 24, came back a little bit. The stock market cares about that rate of growth, and that's what could potentially lead to some volatility in the second half of this year. The rate of growth, slowing in corporate earnings as a headwin from you, Chris. What's another headwind that we should be aware of that could cause the market to be quite choppy moving forward?

Starting point is 00:09:51 Headwind would be not sure with the new Fed share, you know, what's he going to do? He clearly is going to change the messaging profile relative to Jerome Powell. And relative to last probably 20 or 30 years, he's a disciple, I think, of Greensperson. fan who just passed away and, you know, less information, less talking economists on TV, I think is what Warsh is going to go for. The good news is, at least for us, hopefully, is he actually was involved in the financial markets with tradable financial markets, not as a lawyer, doing private equity for a few years. So I think the data that he's going to look at will be more real time and less these, you know, six weeks to eight-week-old government data that's

Starting point is 00:10:44 revised, you know, ten times and people ooh and awe over it. And it turns out to be meaningfully wrong. Okay, so new Fed share, there's some uncertainty there regarding what they may do. Yeah, and they're usually tested. And the history of new Fed shares, I think the last seven of them, have been tested by the financial markets somehow. whether it's an inflation scare, a growth scare, some shock overseas. I think, you know, they've all been tested.

Starting point is 00:11:18 Markets have declined anywhere from seven, you know, double-digit rates over 20%. Whether it's a coincidence or not, expect probably later in the year Warsh to be tested some kind of way. We can guess it while. If for no other reason, merely the fact that there will be less, communications in between meetings means that when the meetings happen and interest rate policy is made there's going to be more volatility there's going to be more variability to the potential outcomes that what happens and that in itself will create volatility you know I think people have gotten so

Starting point is 00:11:57 excited about it they forget that SpaceX is really three companies and you know there two of them when they were private were essentially monopolies Starlink was essentially a monopoly. And SpaceX was a monopoly that even Elon said he didn't think was going to work. And SpaceX has been the rocket company has been in business, what, 22 years? Has it been a while, yeah. It's an amazing amount of time. So it's just been in the last couple years when he bought Twitter and then he

Starting point is 00:12:29 bought GROC or XAI. That's where all the money's going. And those are not the leading companies in the field, right? He's trying to play catch up and spending a lot of money to do it. And as a public shareholder at a $2 trillion valuation, when the valuation, I think, was $500 billion six months ago. It just doesn't make sense. Does the rate of earnings growth decelerate,

Starting point is 00:12:58 which could cause some type of sell-off? And volatility, because of the various factors that are ongoing, and being in, let's call it a late stage of a bull market, is normal. Is that volatility something that you can withstand? Because we've got a lot of questions, we got them pre-submitted, we have them in the comments, should I sell now and get out and wait to come back? And this is where the plan matters, right? If you sell now, what you're ultimately saying is you're guessing right now

Starting point is 00:13:32 and you're going to be able to guess right a second time on when to get back in. And we all know that's unlikely to happen. So the probability of getting both of those right is extremely small, and over long periods of time, you're most likely costing yourself money. And Charles, I want to let you respond to this one first, but I want to first say this, because this is important. Do you know what the difference between gambling and investing is?

Starting point is 00:14:00 So think about it for a second. What's the difference between gambling and investing? The longer you invest, the more likely you are to win. The longer you gamble, the more likely you are to lose. So volatility is to be expected, but have a proper allocation to equities as part of an overall plan, know where your income's coming from, make it durable, make it predictable, make your income growing, and, of course, make it liquid. Replicate that paycheck in the retirement phase,

Starting point is 00:14:29 the thing that made decisions that were financial in nature much easier when you were working in the accumulation years, replicate that in retirement and allow the stock market noise to not bother your quality of life. That's the secret, and that's what we do here at O'Carvis Financial Group. So, Charles, when we talk about some of the questions here, we're going to just put a bunch of them into one, some of the pre-signited questions, some of the comments here. you know, what is so difficult about getting out when people feel that the market is volatile or they feel it may go down? Why, in your experience, over many years of doing what you do,

Starting point is 00:15:13 is that unwise because the unpredictability of markets? Yeah, well, it tends to be emotionally driven, number one, and it's not based upon reliable, statistical, objective, indicators, which is what we tend to look at. We can take, Chris and I can take a step back and take a very objective look at what's going on. But as an individual who sees maybe the value of their account fluctuating a lot, that becomes a very difficult emotional decision for them. Or watches the same news program every night. Yeah. And they see the headlines every single night. Or even if it's different news programs, those are things that are meant to tug on the emotional strings. And those things, the same things that make you uncertain about your portfolio

Starting point is 00:16:00 are the same things that keep you tuning tuning in to that same show every single evening or every single morning. Sure. I spent a lot of time thinking about the elements of behavioral finance, and we sit in, it's just an incredibly interesting intersection of how people think and how people behave. And again, it boils down to the value and the importance of having a human being as a financial advisor as opposed to, you know, some crazy, you know, AI generator, whoever, trying to provide investment advice. You need a person that's got experience that can help guide you into not making irrational, emotional decisions. Chris and I are just in the back. Chris and I work in the kitchen, making the best possible, you know, meatloaf, mashed potatoes, green beans, whatever it may be

Starting point is 00:16:56 to achieve a particular function figuring out and talking with the client, how much of each of those, and they're all different, all the clients are different, how much of those should be used to create the meal for them. And so we can take a step back and view it very objectively. And I think, and then having a person to kind of help guide you through that process and understand what their plan looks like is just an incredibly valuable aspect. I would, I mean, I would just ask for all you who are contemplating that, do you have a successful career in investing doing it? Right?

Starting point is 00:17:32 Every time you've thought about pulling the rip cord and going to cash, you know, did you do it? Did it work out? Did you get back in? You know, what did the market do the next year? What did it do the next three years? because I've met very few people who ever could get both decisions right. And most of the people I ever talk to are calling when volatility is super high to make changes

Starting point is 00:18:02 and they want to move out, which from a pure data perspective, and right now this is not high volatility. This is actually normal volatility. VIX at 2021 is normal where it is for the last 30 years. Chris, give you a couple of final thoughts and maybe if one of you guys want to talk a little bit more about the potential for rates to continue to increase. We're talking about, I don't want to get into real rates, but just the 10-year treasury, but then also an increasing dollar. Because I think these could be headwinds into the second half of the year. So any final thoughts, then we're going to do the giveaway on anything that you have to say and then talk to us a little bit about the strengthening dollar.

Starting point is 00:18:46 what happens if interest rates go higher? Yeah, no, great points. Those are two headwinds, right? A stronger dollar, from a consumer standpoint, is great. But from a financial perspective, the markets don't generally like it because it's a headwin to earnings because so many of our companies sell products overseas. The dollar is going up right now, largely because we're one of the best economies in the world. You know, ourselves, Taiwan, Korea are growing faster than everyone else.

Starting point is 00:19:18 So money comes here. But that's a headwind to precious metals. It's a headwind to overall industrial commodities because they like lower dollars. And as far as interest rates, same thing. If interest rates, because either are economies too hot and people think they're going to raise rates, which is kind of what people are talking. talking about now, or if it's back in like the first quarter and inflation was running up,

Starting point is 00:19:49 either one, if overall nominal rates inch closer to 5% on the 10 year, that's bad for overall stocks because you're discounting your valuation. Now instead of that 21 and a half, one over 0.05 is now 20. So you're just getting multiple compression, even though your earnings are growing. If we had 5% of the tenure, I wouldn't be shocked if we saw an 8, 10% correction. Or more. But you have some numbers there, Chris. So I want to put this into perspective. So an 8% correction in the market, a 10% correction, a 20% correction.

Starting point is 00:20:24 These things are fairly normal. So Chris has some numbers. We just want to go through these numbers, give Charles a final word, and then we're going to announce the final giveaway winner. Yeah. And these are, I'm giving creative planning. These are their numbers. and I have looked into them, they're great numbers. So minus 10% declines in the S&P 500, once every one and a half years, okay, minus 20% once every

Starting point is 00:20:52 four years, minus 30%, which is essentially a recession, once every 10 years. And they're dreaded, your money gets cut in half, is once every generation, once every 50 years, once every 48 years, your money gets cut in half. and still the markets at new all-time highs and has compounded over very long periods of time at double digits because earnings and the ingenuity of American companies to grow revenue and grow earnings over time.

Starting point is 00:21:23 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, 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.

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Stock Talk - 2H2026 Market Outlook Summit Highlights: The Market Is Up… But Volatility Isn’t Over

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