Stock Talk - Feeling Uneasy about the Stock Markets? Watch This

Starting point is 00:00:00 Hey, till I get you on that clickbait title, of course we aren't going to promote insider trading. However, it won't stop this video here because in the next 10 to 15 minutes, we'll dive into a few things our team looks at in the markets that have historically led to market moves. Several of them are just fun historical facts that keep repeating, and others are usual real-time data series that our team keeps discussing time and time again. The good news is that virtually all of these indicators are aligning to say the typical, first-year presidential term, first-quarter sell-off should be behind us, and greener stock prices are ahead. However, investors, I want to remind you that we've anticipated that the first two to three quarters, not weeks or months in 2025, should see higher volatility in both 2023 and 2004. Of course, that's exactly what happened last month. Let's start with the fun facts,

Starting point is 00:00:52 the ones that only insiders know. Well, first off, in my investment career, almost all major stock selloffs have happened while I'm on a multi-day pre-planned vacation. This year 2025, of course, has proven that factoid a money trade once again. Investors, I left for New York City on Wednesday, February 19th, which was the closing high for the S&P 500 at 6144 and the market promptly dumped. I then left for Florida on Friday, March 7th, and returned to the office Thursday, March 13th, which so far has been the closing low for 2025 at 55. Folks, this isn't just a one-year thing. It's happened time and time again for the past 25 years. Maybe it's because I tend to take vacations in the seasonally weakest time of the year for stocks,

Starting point is 00:01:40 mid-February through mid-March. Maybe it's just bad luck, but it's happened time and time again for years. And clients and financial advisors ask me, why I never take vacations? Well, now you know one of the reasons, and also, money never sleeps even while you're on vacation. The good news for investors said that I have no significant planned vacation days until February 2006, almost an entire year from now. I know many of you might laugh at this, but if you're a trader, you trade things like this until they stop being coincidental. I have a great friend and mentor who is over 80 years old and still very active in the industry running his investment business. He loves to trade stock short-term because

Starting point is 00:02:21 it keeps him mentally nimble, and it because it's fun and profitable for him, even though, he's financially secure. So what's the worst thing that can happen to a trader when you're out of the office? Yep, big price moves, particularly to the upside. As luck would have it, my friend also likes to play golf and take his family on really nice vacations for a week or two. Guess what almost always happens when he leaves the office and not trading his machines? Yep, almost always, straight lines higher in prices with little to no pullbacks, leaving him missing out on the trading moves. There are a handful of other things I've seen time and time again that tend to be tells at market inflection points both up and down. At market lows, the same friend's call asking what my percentage odds I'm placing for an economic recession,

Starting point is 00:03:08 were to tell them just move their IRA into cash because things don't look good. Investors, one of the biggest fallacies put out there in the last 10 years, along with the predictability and value of Fed Fund's futures, is sell-side strategists lobbing out recessionary odds like their bookies. Folks, their odds. Here they are. They're zero or 100%. There's no 60-40. There's no absurd calls for models being 37 or 52%.

Starting point is 00:03:37 Folks, it's zero 100% in my book, recession or not. Are we going to have one or not? Not 50-50, anything like that. Which brings me back to the real-time data series. We've discussed many times over the last seven years, all of which are saying nearly the exact same thing. Good things are ahead, bad things are behind. It doesn't mean no volatility, but they do say that this is an ordinary first quarter decline in stocks and the dip. Whoever you want to describe that, what happened last month should be bought for now.

Starting point is 00:04:07 Quickly, in order of importance from lowest to highest, in my opinion, here are those things. First off, better seasonals kick in after mid-March, as mid-March is historically the seasonal low for the year in most first-year presidential terms, and also over the last 20 years. Take a look at the great chart from Carson Analytics. Historically, March 12th has been the low. Okay, investors, the second piece of data, real-time currency pairs like the Euro-Yen, which have been in an upward channel since the COVID lows, and have historically signaled to investors to take more risk, not less risk, are rallying.

Starting point is 00:04:43 This cross peaked in July of 2024 and sold off. and the S&P 500 quickly sold off about minus 9.7% back done. This currency cross peaked again in mid-December and sold off again through the end of February, and the S&P 500 dropped minus 10.1% from peak to trough. It's back in rally mode as growth is being stimulated in Europe, and Japan is raising rates. This currency trend is positive. It's generally been a leading indicator for equities. The third real-time indicator, Dr. Copper is perking up and close to breaking out of a massive four-year

Starting point is 00:05:16 base at 488 per contract. Okay, admittedly, for years, I've said I hate this saying about Dr. Copper having a PhD in economics. It's largely nonsense for the U.S. economy and other developed ones. Why? Because emerging market economies and their demand have driven incremental demand for copper for decades now, not U.S. construction or U.S. demand, which has been the case prior to 2000 and the buildout of the boom in China and India the last 25 years. That said, I find almost comical that virtually every cell side strategist who was wrong about 2023 and 2024 being much too bearish and who started 2025 too bullish on equities in the economy seemingly trying to catch up is now cutting their forecasts just as Dr. Copper is saying they should be

Starting point is 00:06:05 raising them for the second half of 2025. For what it's worth for the first time this year, the purely mathematical-driven volatility model I run and looked at that has proven pretty darn and precise and accurate since COVID says that 7,000 on the S&P 500 in the first quarter of next year, 2006, is now more likely, not less likely outcome. Fourth, the US dollar or DXY index has topped and is trending lower, not higher, as many in the financial press were parroting just in December. Same with the market-priced interest rates. Both of these trends are better, not worse for earnings in the second half of 2025,

Starting point is 00:06:42 and valuations in the second half of the year as well. Recall, it was only three months ago in late December, with strategist optimism for the year of 2025 running high and S&P around 6,100, the most strategists were declaring that interest rates were going to 5 to 6 percent and that dollar was going higher because of Trump policies. Both calls coming almost exactly the wrong time at tops and both. Now, with both lower, those being interest rates and a lower dollar, somehow these same strategists have forgotten that these are now, tail wins for earnings in the second half of the year this year, 2025. Okay, fifth and finally, investors, I leave the best for last. Investors' short-term, real-term, real interest rates,

Starting point is 00:07:26 I'm looking at the fast-twitch one-year real rate, which I found is a great proxy for shorter-term real growth expectations that look to have troughed near exactly when they have almost every year for the last decade. Mid-March to the end of March. Investors, all these indicators, which have led rallies and stocks for this cycle, we're all saying the same thing. Don't panic here. There should be a better place and a time higher

Starting point is 00:07:49 to sell in the coming three to five months if you want to. So investors, if you're panicking right now, maybe your investment allocation is mismatched with your risk tolerance. Are there other indicators saying it should be better to buy than to sell here? Yes, there are quite a lot of them. AAI sentiment data is as bad as it was

Starting point is 00:08:09 at the lows in March of 2009 at the spot-on lows of the great financial crisis. Volatility indicators are saying that much of the forced liquidation at hedge funds and in leveraged ETFs is over for now. The U.S. money supply growth is now accelerating to almost 4% year-to-year, which is the fastest growth in two and a half years. Investors, there are no guarantees in the stock market in the first two months of 2025 are

Starting point is 00:08:36 proving that lesson to those who just entered into the markets over the last two years and enjoyed plus 20% returns each year. It's been a sloppy, choppy mess, which while uncomfortable to those watching day-to-day or week-to-week, as we previously warned, is not unusual, as the average year has said drawdown of minus-13 to minus 15% at least once, and higher volatility was likely to be the case for the first half at 2025.

Starting point is 00:09:03 Did we see a minus 10% drop in less than 20 trading days the fifth fastest correction in history? No. But here's the data from Seth Golden showing historically swift and fast down has been followed by very profitable investment returns over the next three, six, and 12 months. I know that's not many data points, but 100% is a pretty high batting average in my book. Of course, no guarantees that history repeats again, but that's great data. I remind investors that even in a soft landing, Vallen Greenspan led 1994 through 99 stock run in 1996, three years in, the S&P 500 drop, Uped, minus 11% peak to trough in the second quarter of 1996, broke the 200-day moving

Starting point is 00:09:45 average for about two weeks, causing a lot of heartburn for investors, but ultimately went on to make new all-time highs in the fourth quarter of 1996 and over the next few years. A repeat of the gloriously boring and straight lineup, 2017 under the first Trump presidency, was very unlikely scenario in our work. The main reason we did not see a direct repeat coming in 2025 was the fact that the fact that we that in 2017, President Trump focused on one and only one thing, lowering taxes and getting that policy through Congress. Lower taxes equals lower friction on consumers and corporations, and shareholders love that. Republicans' linear focus on taxes caused the S&P 500 to move upward

Starting point is 00:10:27 in 2017 in a near linear and historically low volatility year. Trump, 2.0 out of the gate. It appears that Trump is going for the early shock and awe, taking on a myriad of policy changes in rapid fire minor, immigration, tariffs, foreign policy changes, and government firings and downsizing by the Doge, while potentially good for taxpayers and citizens over time, short-term do what? They all increase friction in the economy. They all increase cost to the economy short-term, and shareholders in financial markets have hated added friction. Is this max friction in the economy? The data behind the scene says that it's highly likely it is, just as other strategists panic and tout out their recession odds.

Starting point is 00:11:09 While other current policies in D.C. are anti-economic growth in the short term, real-time inflation expectations look to a peaked, while real growth expectations have troughed, just as others say the reverse. With most of the real-time data series flashing troughs and bottoms, I'm actually more optimistic thinking about the next 12 months, even as the markets are lower than two weeks ago. What if Trump is crazy like a fox?

Starting point is 00:11:33 As a voter, you don't have to like him or his policies, but that isn't what investing is about. What if this time around he and his staff have decided, let's tackle all the hard stuff first. The economy is pretty good, albeit overstated. Let's go all those friction items out of the way in the first six to nine months. Let's get that done first,

Starting point is 00:11:52 and then we'll focus on the easy stuff, the stuff everyone who's a shareholder or a consumer likes, lower taxes, and lower regulation. Things that lower friction in the economy. Things that would accelerate the economy in late 2025 throughout 2026, so the GOP members can get elected or re-elected in the midterms in the second half of next year. What if from an investor standpoint, he's crazy like a fox? Think about that for a moment. Soft leanings in the economy do not guarantee no volatility. This time around,

Starting point is 00:12:24 the Trump administration seems to be going for that early shock and awe, taking on those tough policy issues. However, here we sit in late March and the good news were oversold and historically speaking nearing what is normally a low in both economic growth expectations in the first quarter, a seasonal low in the stock markets, and yes, a seasonal high in inflation concerns. Investors know that regardless of the past through the economy and the financial markets in the next few months, the investment team here at Oak Carbis will be here crewing this ship and adjusting our models where we can. We expect 2025 to be a very active year for active stock management. Until next week, have a blessed weekend, and remember, you have some legal

Starting point is 00:13:04 inside information now. My next real vacation isn't for another 11 to 12 months, maybe more, and historically speaking, that's been a really good thing for stocks. 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

Starting point is 00:13:51 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 portfolio. Investing involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Feeling Uneasy about the Stock Markets? Watch This

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