Stock Talk - American Exceptionalism: 2025 Soft Landing

Episode Date: February 3, 2025

Learn about the concept of "American Exceptionalism" and why U.S. markets have outperformed globally, the ongoing “soft landing” of the economy, and what historical comparisons to past market cycles suggest for 2025. I also break down the impact of a stronger U.S. dollar on multinational companies, the outlook for China’s markets, and how economic data surprises are influencing investor sentiment. If you're looking for a deep dive into stock market trends, interest rates, earnings reports, and macroeconomic factors shaping the market this year, this is one you won’t want to miss!   Watch the replay of our Summit using this link: https://youtube.com/live/z5-WdOcoCw8?feature=share   #AmericanExceptionalism #SoftLanding #StockMarket   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 financial planning and investment management qualifications, becoming a Chartered Life Underwriter (CLU®), a Chartered Financial Consultant (ChFC®), and a Chartered Financial Analyst (CFA®).   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   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. References to third-party analysts should not be seen as an endorsement of their views or recommendations, and you should do your own research before investing. 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.

Investors, first off, I want to apologize for missing last week and for us not giving you some market content. We had a 50-year historic snow event here in Houston midweek, which kept us from filming, as well as postponing Oak Harvest's first half Market Summit from Thursday the 24th to last night, Thursday the 30th. There's a link in the description below to the portion of last night's event we live streamed over YouTube for clients and online guests. We covered a lot of ground over the hour and a half from interesting stock, bond, and currency market topics, to ongoing economic events, and of course, a few things going on in Washington, D.C. Before we get into this week's topic, I want to briefly cover a term that's been thrown around in the financial markets for about three months now. What's the term? That term is

American exceptionalism. It's mainly being used to try to describe investors why American stock markets have outperformed most of the world the last decade plus, why a diversified portfolio of global stocks has lagged behind the SP500 performance not just last year, but for most of the last few decades since the great financial crisis. Many throughout the media are citing technology stocks and innovation as the reason for U.S. exceptionalism. To me, the answer is easy. Investment capital likes capitalistic-leaning countries and their economies, regardless of how flawed they might be over socialist, communists, and dictator-controlled countries. They like markets with rule of law, and order over markets where the government elected officials, or worse yet, dictators control their economies.

At the end of the day, money goes where it's treated best and where there is less friction, be it government interference and political decisions or higher taxes and higher regulations. At the end of the day, here in the U.S., your money is green, not colored blue or red. So investors, quickly, this week's investment content, as our team has been busy, digesting to and listening a waterfall of earnings releases from many of the largest and most well-known companies in the S&P 500. Please remember, though, that this piece was written five days ago, and some things might have changed in a very short term since this writing. First off, as they have for over 18 months, the economy and stock markets remain on soft landing paths. At Old Carbis, we've discussed the Greenspan-induced soft landing of 1995 through 97, almost every month for a year now,

comparing it to Jay Powell's soft landing of 2024 through now. Take a look at the updated overlay of the S&P 500 back then and now. As we previously discussed, soft landings for the economy do not guarantee no volatility, straight line up more moves like 2017 higher in the S&P 500 under Trump 1.0. The market saw down move of almost 4.5% peak to trough to start 1996, and our current S&P 500 saw the nearly exact same decline from its December 6 peak to mid-January lows right near 4.5% down.

For those of you wanting to compare the S&P 500 back leading into Trump 1.0 in 2016, then 17, the first year under his first term. Here's that overlay. 2016-17 versus 2024, 25 year-to-date. Well, long-term investors would welcome a repeat of 2017 and 2025 as 2017, 2017 was a year of historic low volatility and almost straight lines higher in the SP 500,

particularly after the first quarter, our team is not currently expecting that great outcome. Recall from our previous video titled Three Potential Outcomes for the S&P 500 in 2025, the great, the great, the great, a 2017-like great outcome would equate to the S&P 500 over 7,000 by year end. So investors, recent economic hard data releases have been coming in, short of economic expectations, the economic surprise index has slowed towards positive plus 10. Now, investors, that's still good growth, but slowing. As inflation data in the U.S. tends to be highly seasonal, the year begins with higher inflation points and then slows throughout time.

It's quite normal for this cumulative economic surprise data series to come under economic forecasts to start the year. Take a look at the chart of the two-year real interest rate. You can see the economy is slowing in the real-time, real interest rate chart. Down and to the right is okay, but it means slowing at the pace of growing. So a de-acceleration and growth rate. Growing but slowing, I'd like to say. All those math folks would say it's decelerating. Well, my final comments for this week, yes, for those of us for the last two months, it's on the US dollar, the DXY index. The stronger dollar in the second half at 2024

weighed somewhat on investor sentiment. Largely those in the U.S. investing in foreign markets and those investing in slower growth, multinational, America-based companies. Along with our team, I can count on one hand the number of economists and strategists who are anticipating a weaker dollar in 2025. Yes, you heard that right, a weaker dollar. Why would investors want a weaker dollar? Almost every TV financial evangelist was projecting a higher dollar for 2025.

Don't we all want a stronger dollar if there truly is U.S. exceptionalism? Isn't a stronger dollar good for America? The answer is yes and no. Yes, a stronger dollar is good for America and good for Americans. It shows we retain our position as the world's reserve currency, even if that status weakens in favor of gold or digital currencies. It's good for US consumers and bad for foreign consumers

as it's inflationary for them and positive for us, particularly if you're buying goods produced elsewhere or traveling abroad. However, a stronger dollar, is a definite headwin for the overall S&P 500, as much of the S&P 500 is comprised of U.S. companies operating in the multinational arena. The likes of J&J, Coke, Pepsi, Cat, and even technology companies based here, sell anywhere from 25% to 50% of their goods and services outside the United States.

For these multinational companies, a stronger dollar is a headwin to both revenue and earnings growth, and it depresses both numbers when their foreign sales are translated and converted back. back into US dollars. Look no further than the previous earnings reports from both Oracle and Adobe and the software technology world, warning of hundreds of millions of dollars in headwinds for their fourth quarter at 2024 and future first half 2025 revenue and earnings due to a stronger US dollar

in the second half of last year, 2024. However, I stand by this chart that we've shown subscribers for over two months, the US dollar under Trump 1.0, first its current path. If that doesn't look like it's almost tracing out the near exact same pattern to the week, I don't know what does. In 2017, under Trump 1.0, the DXY index looks like it peaked

on the first Monday in January. So far this year in 2025, the DXY looks to have peaked on the second Monday in January. Investors, a weaker dollar would go a long way to helping S&P 500 earnings estimates look too low in the second half of the second half the year in 2025 and not too high as they usually start the year with much too optimism. Remember, these macro factors take a long time to flow through company's profit and loss statements.

Still, the markets and the stocks most affected will move in advance of these reports. Finally, one of my favorite topics for 2025, China. The U.S. relationship with China from both a competitor and adversary position has been widely discussed for the better part of 8 to 10 years. Over the last two years, many have said China is uninvestable. This sounds to me a lot like the uninvestable call that many TV personalities made about those dirty energy companies when Joe Biden was first elected president in 2020. Of course, what happened? Well, that sector became one of the top assets over the first two years of Biden's term. Listen, investors, I don't like a lot of things I'm hearing about China's

economy, as well as their political and social positions. Right now, China's domestic consumption economy is pretty bad, and their stimulus programs that have been announced to date don't seem to be working yet. However, China is still one of the top economies and largest markets in the world for products and services, whether you agree with their political policies or not, global stock markets and investors would be best served if they put in place some programs to stimulate consumption by their own population in 2025 and 2006. Maybe they're waiting to see President Trump's hand

and game plan. I don't know. What I do know is that their markets were one of the best performing asset classes under Trump 1.0 in 2017, and that was with Trump tariffs and geopolitical tensions. I would venture to guess that the best known, publicly traded Chinese company and stock,

Alibaba, founded by Jack Maugh. I'm going to leave you with the over overlay of Baba under Trump 1.0 and now in 2024, 2025. Investors will history repeat in China? Will Baba and other Chinese heavy names make investors big money in 2025? I don't know. Instead of US exceptionalism and in narrow global markets, will the bull market and equity spread beyond the S&P 500, the German Dax? Yes, the German markets are also at new all-time highs.

And Argentina? Yep, you heard that right. the Argentinian stock market was one of the best in the world last year in 2024. Will they expand to include a surprising to most investors for Gagewin rally in Chinese and Chinese leverage stocks in 2025, much like it did in 2017? Of course, no one knows for sure, but I would not bet against it. As we can see by the prior soft landing under grain span, historically speaking, higher volatility out of the gate like we had the first two weeks in January,

does not mean that the bull market in U.S. equities is over or that 2025 can't be the third year in a row of healthy investor gains for U.S. stocks. Investors, we hope that you joined us last night for our first half-market outlet. Once again, the link for the replay will be in the description below, and feel free to pass it on to anyone who might find it educational. Until next week, and the fire hose of earnings reports and conference calls ends, and we can catch our breath here at O'Carbis on the investment team. Have a great 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 past performance is not indicative of future results.