Stock Talk - Bad News for the Bears: Running with the Bulls and Winning

Starting point is 00:00:00 Investors, it's one of my favorite times of the year. What's that? Baseball, preseason spring training. I know last week's was a bit of a downer in a video, bringing bad news percolating behind the scenes in the economy that many in the media won't tell you about. This week, it's back to good news. Yes, Virginia, there is a Santa Claus, and he's still riding his sleigh in a bull market for equities. Let's just retitle the 1976 sports comedy for this week's title and call it the bad news for bears. There is no limit to what some men will do for money. We looked at the data behind the data last week to show you that the economy is losing momentum very quickly. However, slowing doesn't mean shrinking.

Starting point is 00:00:42 This week, there are a few quick hits on a continued bullish setup for stocks for 2025. Let's start with the obvious. As of this writing, the S&P 500 was sitting at close to a daily all-time high. It's sitting at 61.14 within a few points made back on my birthday, December 7th. last year. There are a few hedge funds and tradingisms that come close to always being true rules for the stock markets in my book. Let's start with the biggies. First, price is truth. May not believe that the price is the right price. Still, the markets are bigger than anyone opinion and collectively, they think we deserve to be at or near new all-time highs in the markets.

Starting point is 00:01:21 Here's the chart of the Daily S&P 500 over the last few years since the pivot lows in October 2022. I've drawn an upward sloping channel around the bands we've traded in since then and circled a few key lows like the late October 2003 low when the hysteria was high around recessions or duplicate crashes like 1987 or many in the EWT, that's Elliott Wave theorist, panicked and got emotional and biased and decided to stop following charts and start trying to call generational tops. I circled the midsummer swoon caused by the Yen-carry trade blow-ups. last year, and regardless of those short-term trauma, news events, election outcome, or going-ons, here we sit within a few points of an all-time eye in the S&P 500.

Starting point is 00:02:07 Even more interesting, here's the daily chart for the S&P 500 over the last year. Upward sloping overall, great returns in 2024 that many missed it, being bearish, or for whatever reason. And here we sit. I've even marked the periods last year, where the markets traded sideways for a period of time before resuming their upward path. Try to recall all the events that happened in 2024 along the way and tell me how. For not in a bull market still, the S&P 500 went sideways for 45 to 46 days exactly twice

Starting point is 00:02:37 before breaking out to new all-time highs and trending higher for at least two months. But as of this writing, February 16th, Sunday, there have been exactly, yes, 46 training days since the last all-time high close on December 6th, and still I hear most of the media is bearish. Folks, this is what a bull market. looks like, a picture is worth a million words and dollars. Steve Cohen's first rule of trading is never short a new high or buyer new low. Be my guest if you want to. Short here new all-time highs, take a shot, try to be a hero and try to make a name for yourself. But the odds in the history say, be long and stay long here. According to 314 research, only 13% of time since 1950 have

Starting point is 00:03:19 these setups led to corrections. Investors, price is truth and the price says time. are good. The second positive things for stocks, earnings have been overall good, even with higher interest rates and a higher dollar in the fourth quarter of 2024, dampening some of the earnings leverage that many large S&P 500 companies have. According to Fidelity, 77% of companies have beaten estimates by an average of 655 basis points. What started earnings season is 8% growth looks to have exited at 13% growth, and that's with both higher borrowing rates and a higher dollar in the fourth quarter. The good news for the second half of 2025 is most companies are already cutting forward growth guidance to reflect the stronger dollar. Investors, having done this money

Starting point is 00:04:06 management gig for 30 plus years, my experience is that forecasting currency fluctuation is amongst one of the worst things that management's do. If they are now forecasting dollar strength in 2025, the dollar is likely to have already peaked, as we said back in December when others were also hysterically discussing U.S. exceptionalism and a strong U.S. dollar. Our opinion back then was the dollar would likely go lower in 2025, not higher, like others had said. Here's an updated chart on the DXY under Trump 1.0 and 2.0 to date. So far, there's zero reason to think the dollar will gain strength this year, and others are now joining our opinion on a weakening dollar for the rest of 2025.

Starting point is 00:04:48 A lower dollar means a few things for your money. First, go ahead and take that international trip and vacation now, and don't wait because the cost will go up. Second, earnings estimates for a large part of the S&P 500, which was massively lagging last year in 2024, will have a tail run for revenue and earnings in the second half of this year. Third, owning international stocks is timely. Finally, yes, American is exceptional, but there are times when international stocks do better than U.S. stocks, 2025 is likely to be one of those years.

Starting point is 00:05:19 We've previewed this back in December. Even going so far as discussing China is likely one of the best asset classes to be in 2025. So far, that one's been looking right as the herd has begun finding these reasons to own Chinese equities. Our favorite overlay of Chinese equities remains Baba, under Trump 1.0 and 2.0. I remind viewers that we've discussed the theme back in late 4th quarter of 2024, when most in the media were saying Chinese stocks were? Yep. Uninvestable. And that's what China has done since then. The Hangsang Enterprise Index is up

Starting point is 00:05:54 34% since September of last year's lows and 20% in dollar terms. And China monetary policy is easing to boost domestic demand. Chinese tech stocks is defined by the C-Triple-Q ETF, or up 18% year-to-date as of this writing, while U.S. large-cap tech stocks are one of the only sectors lagging behind the S&P 500 year-to-date. It's not just China, but Europe, which I argue is a Chinese surrogate economic play as well. The German Dax hitting new 52-week highs up 13% year-to-date. The French tax at 52-week highs up 12% year-to-date. It's lagging in some other European indexes due to its large weighting in Louis Vuitton.

Starting point is 00:06:36 Investors won the dollar peaks, international stocks, streak. A couple more final bullish stats. Investor sentiment has recently plunged in the last four weeks on the back of a continued shotgun policy coming out of D.C. that, while I might agree with some of them, are rapidly slowing growth in consumer sentiment on the economy and on stocks. According to AAI-U.S. investor sentiment bearish at 47% compared to 43% last week and 22.5% last year. This is 50% higher than the long-term average at 31%. Take a look at the overlay from all-star charts.

Starting point is 00:07:13 Investors, finally, as I've often talked, talked about, at least talked about by bearish traders when they're thinking the market is going to crash or go down big. It's the move index. We've discussed this one many times the last two years. It's bond volatility. It's like the VIX of the Treasury bond market. Why does the bond volatility matter to stocks?

Starting point is 00:07:34 Largely, because bonds, and more specifically, treasury bonds make up the largest collateral pool markets in the world, and Treasuries are supposed to be the safest collateral in the world as well. US government IOUs. When bond volatility is high or rising, hedge funds must de-lever and sell whatever they want to, even if they don't want to. When bond volatility is declining or low, hedge funds can lever up their investments. They can take more risk. They can buy more of what they like.

Starting point is 00:08:01 Take a look at the chart of the move index. Investors, it's going down, not up, like many on TV discuss. This is bullish for equities already, and should it break below 80 later in the year, expect stocks to start marching higher consistently, then even potentially, parabolic in the end. As we previously mentioned, soft landings in the economy don't guarantee no volatility. This time around, the Trump administration seems to be going for the early shock and awe, which financial markets don't relish. However, behind the scenes, believe it or not, bond volatility is declining. That's just the data. Finally, investors, while seasonally,

Starting point is 00:08:39 February does tend to be a lower return, higher volatility month for stocks, particularly in the first year of a presidential term, and maybe the tariff actions and doge firings are this year's excuse. I don't know, but here's the historic data on monthly seasonality from Steve Sutmeyer's data group at Bank America's Securities. As you can see, while February has historically been down the first year of a presidential term, that down has traditionally been the best buying opportunity to late summer and preceded five to six straight months of positive stock returns. Historic data, of course, there are no guarantees. But since our team coined the term the old normal back in late 2022, yes, the stock markets have performed in quite normal ways

Starting point is 00:09:23 versus historic economic cycles we are mirroring. Soft landings, however rare they are. For now, spend a bull market, we are in a bull market. And however choppy things appear on your TV screens, we advise you to continue to run with the bowls, and that's bad news for the bears. Investors know that regardless of the path for the economy and financial markets in the next few months, the investment team at Oak Harvest will be here crewing the ship and adjusting our models where we can. We expect 2025 to be a very active year for active stock management. Until next week, investors, have a blessed weekend. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only.

Starting point is 00:10:08 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.

Starting point is 00:10:44 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 - Bad News for the Bears: Running with the Bulls and Winning

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