Stock Talk - AI Bubble or Summer Stall? Where We Stand In The Stock Market

Episode Date: August 18, 2023

With all the AI bubble calls going on out there, largely from strategists who missed the last 9 months move up in the markets or those who are ALWAYS bearish, I went back to do some historical research to compare what we have recently experienced to the first go round of the internet bubble which I lived through personality living in San Francisco at that time and managing money through.   So, what is ground zero for the AI bubble if we are in one? Watch to find out, along with what it can mean for your retirement portfolio.   #stocktalk #stockmarketnews #retirementlife   Stock Talk is a weekly vlog/podcast dedicated to discussing the Oak Harvest Financial Group Investment Team's perspective on what's happening in the market. Hosted by Chief Investment Officer Chris Perras, each episode brings you our views on stocks, the market, and the economy — with a little education thrown in for good measure. Listen each week and help stay connected to your money!   Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 or fill out this form for a free consultation: https://click2retire.com/Connect   About Chris Perras, CFA®, CLU®, ChFC®, Chief Investment Officer As CIO, Chris is the lead investment strategist and director of research at Oak Harvest Financial Group. Chris develops the firm's core market outlook, putting his decades of experience and expertise to work for our clients. He hosts Oak Harvest's podcast, "Stock Talk," available on the website with new episodes each week. He completed his undergraduate studies at Georgia Tech, and went on to obtain an MBA from the Harvard Business School. Driven by a desire to maximize his knowledge and skill set, he acquired a plethora of financial planning and investment management qualifications, becoming a Chartered Life Underwriter (CLU®), a Chartered Financial Consultant (ChFC®), and a Chartered Financial Analyst (CFA®).   Important disclosures: Content of Oak Harvest podcasts expresses the views of the speaker and is for informational purposes only. Oak Harvest believes that any data, articles, or information cited are reliable at the time of creation, but does not warrant any information contained herein to be correct, complete, accurate, or timely. 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 constitutes 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. Any 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.

Summer seasonality in the stock market is historically a real thing. The data confirms it. With that, it should come as no surprise to investors that stock markets have consolidated and sold off since July 19th, call it July 20th, which was the week of July option expiration four weeks ago. The title of this week's episode, is it a summer stall or AI bubble? Before we press onward, please take a moment to click on both a subscribe and notification bell so you'll be alerted when our team uploads our latest content.

Or better yet, give our Oak Harvest team a call at 877-896-004-0 to speak to our team and set up an initial consultation with an Oak Harvest Advisor to discuss your personal financial situation. The June and July rally in the S&P 500 returned a spectacular 9.8% with July's 3.1% return almost double the average of the normal July at 1.7%. Once again, take a look at the monthly seasonality table of the S&P 500 during presidential cycle year 3. This data was compiled by Steve Suttmeyer's group in Merrill Lynch. Post the first half move, we've entered what should be three or four months of some negative monthly returns and higher volatility at worst or sloppy choppy sideways behavior and a general consolidation

with little net to no price appreciation in the S&P 500 at best. Since the July 27th intraday peak of 4607 on cash S&P 500, the S&P 500 has fallen back a little more than 3%. Had you been perfect at selling that top, which of course no one is, the tech having NASDAQ composite peaked at 14-446 on July 19th, which was Wednesday volatility expiration. As of this writing, the NASDAQ has declined a little more than 5.5% had you been that perfect seller. Take a look at the daily charts on the S&P 500 and the NASDAQ. The S&P 500 had fallen to the 50-day moving average as of this video shoot, and the NASDAQ had

just broken below its 50-day moving average. Here they are, the S&P 500 Daily and the NASDAQ Composite Daily. Do these charts mean that you should blow everything out of your portfolio? Do you sell everything because of these technical formations? No, not if you're sticking to a long-term financial plan. Why? Because both the economic, the Federal Reserve, and stock market cycles still favor us approaching our old, all-time high of $4,800 later in the year and exceeding them in the first quarter of 2024.

While the overall stock market accelerated above our very short-term forecast, in July, pulling forward some of our expected 2023 returns into earlier months, our team remains positive on the total return of the S&P 500 into year end and would use seasonal weakness in mid-September through mid-October as an opportunity to add to stock positions. While many other strategists, advisors, and newsletter writers have been calling the stock market a bubble for years, we still see good opportunities in the public markets. Let me know in the comments below what you think might be happening to year end. True bubble type equity action. and its popping, in our opinion, would come from higher levels in the stock market later in the cycle.

In fact, if one is just a chartist viewing equities as pictures of supply and demand, independent of valuation and fundamentals, and one looks at many of the monthly setups of some recent technology AI stocks and their moves, one might conclude that if, and I do mean if, we're in an AI bubble, call it internet bubble 2.0, we're only halfway there in time and price. Yes, you heard that correctly. If you think that this is the AI bubble, you should be very careful trying to time your shorts for the big secular collapse in those and other technology names. With so many AI bubble calls going on out there, largely from strategists who missed the last nine months move up in the markets or those who are always bearish, I went back to do some historical research to compare what we've recently experienced to the first go-around of the Internet bubble, which I personally lived through while living in San Francisco managing money at the time.

Okay, investors, so what would ground zero for the AI bubble be if we're in one? I'd say it's Nvidia. That would be poster child for AI bubble talk and more broadly, semiconductor stocks. So take a look at the chart of the SOX SACS Semiconductor Index. The SOX Index has existed for decades, including the internet bubble. Clearly, the semiconductor group, and more specifically, Nvidia have been market leaders since the market troughed last October. In fact, the SOX Index rally lasted exactly 100,000.

198 days from Tuesday, October 13th of 2022 last year when it bottomed until month in July, about a month ago. Now, let's look back at the internet bubble days. I'm sure it'll look quite different, yes? No, in fact, backed in the SOX Semiconductor Index troughed on Thursday, October 8th in 1998 and rallied for 194 days into July 16th, 1999 before topping out and pulling back in the third quarter of 1999. Take a look at that chart with the first time span marked below. It was 198 days. However, what bearish strategists calling this an AI bubble won't tell you when they compare the current AI cycle to the internet bubble cycle is what happened after the normally seasonally week summer months of August through October 1999. Back then, in the third quarter of 1999,

semiconductor and the rest of technology stocks sold off from their mid-July peak into mid-August. And they troft for the third quarter and proceeded to mark time going sideways and consolidating. They then went up and down from mid-August through around mid-October in 1999, not making new highs, but not making new lows either. Then what happened in the fourth quarter of 1999 into the first two-and-half months of 2000? Well, that's what those who lived through the 1990s remember about the bubble. In November of 1999, technology stocks broke out to new highs and over the next four and a half months put on a historic, parabolic move that put an exclamation point, ending the bull markets of the 1990s. To remind investors who haven't studied it or didn't live through it, these were the monthly

returns of the NASDAQ composite into the internet bubble peak in February 2000. Take a look at those tables. The NASDAQ had gained 125% in the year and a half up to the peak of the internet bubble and included monthly returns, not annual returns, but monthly returns of 13%, 10%, 12.5%, 4%. 14%, 12.5%, 22%, and 19%. Toward the end of bubble-like moves, stocks usually move parabolically, meaning each successive month has a higher return

than the previous month until buying is exhausted and short-selling has collapsed. Look again at the Sox Index chart, I just gave you. That's what parabolic bubble charts look like. They're a lot of fun on the way up because every buy looks smart and every cell looks wrong, but they always end the same. hardship for those who are greedy, stay too long, or don't recognize the peak, reversal, and downward momentum that usually lasts quarters and years, not days and weeks. Okay, investors, so where do we stand right now?

Well, it's summer, and so far the markets call it the S&P, the NASDAQ, or even the SOX indexes, are acting in very normal fashion. Will we continue to act normally over the next few months? Our investment team sees it that way. Are we in an AI bubble that many are calling for almost all of those who may be? missed the up move in tech stocks since last October? I don't know, but if it is, history says we're likely in the pause that refreshes and refueles that bubble, not at its peak. At Old Carvis, we currently manage broadly diversified equity portfolios that balance risk and reward for our clients. We don't concentrate our clients' money in only one or two sectors seeking to hit a grand slam.

We try to hit singles, doubles, and occasionally a homer if someone makes a mistake and we find a stock at the right price at the right time. For those investors who are less optimistic, and don't like risk-taking as much, those seeking higher dividend income that grows, those investors willing to forego some potential price appreciation. In favor of lower volatility, we have a dividend growth equity model. For those investors who are more in the optimistic camp, seeking higher long-term price appreciation,

which does carry higher expected volatility, without the focus on dividend income, we have a blue-chip growth equity model. The overall tools that advisors and financial planners use are usually a combination of market and insurance-based tools to meet your resources based tools to meet your retirement goals. Our investment team is busy working on some new and highly unique equity models for our advisors to use for tools for our clients in the not so distant future.

Stay tuned. The future in the stock markets is always uncertain. That's why our retirement planning teams plan for your retirement needs first and your agreed second. Give us a call here to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at 877-896-040 and schedule an advisor consultation. We're here to help you on your financial journey into and through your retirement years. I'm Chris Paris, and from the whole team here at Oak Harvest, have a blessed weekend. 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. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and pass performance is not indicative of future results.