Stock Talk - It's Undebatable: GOP, DNC, or 3rd Party Candidate

Starting point is 00:00:00 Last Thursday night, June 27th, as a nightcap to the O'Carvis live stream of our second half market outlook, whose link can be found in the description below, President Biden and former President Donald Trump squared off in the first of two presidential debates. Investors, I'm not going to get into a lengthy recap of the event in what was said or what was and said. That's not my job here, or the investment team at O'Carvis. I will say that as a Friday morning, the betting odds of a GOP victory in November flipped from about 4060 to 6040. However, investors, I have to remind you these betting markets, much like the often quoted Fed Funds futures markets that try to predict Federal Reserve behavior have had little predictive forecasting ability

Starting point is 00:00:46 this far out from election over the last few decades. In fact, on Friday morning, after the PCE inflation data was released, stock markets initially rose strongly. Then they fell and closed Friday on their lows as long-term interest rates rose five to eight basis points on the long-end on the day. Why did long-term interest rates rise? Because bond markets are afraid that whoever wins in November, our politicians in Washington, D.C., and those running the federal government will keep up the high levels of borrowing and spending with money we don't have, and with deficit spending will continue under both parties' control. I'm not going to recap the event because I can't find anything new that was said, and that's not our job.

Starting point is 00:01:27 Our job as investment professionals at Oak Carvis is first and foremost to be fiduciaries of our client's capital and to invest in accordance with their financial plan, to help them over longer time periods to meet their individual financial goals that have been conveyed to our team of highly trained financial planners and financial advisors. Another job function of ours is to communicate and educate to our investment clients and prospects, our thoughts and opinions based on our experience and research of current and in forward-looking financial markets. As CIO here at Oak Harvest the last six years, I've taken it upon myself to try to be proactive in discussing what we believed would be forward-looking hot buttons

Starting point is 00:02:08 or emotional issues that might present themselves in the future for many retirees or near retirees. We've tried not to wait until the issues are upon us. Where we can, we try to look for historical analogies to see how financial markets behaved under different events, wars, pandemics, elections, recessions, we've taken on most of the big ones over the last six years.

Starting point is 00:02:30 So case and point is the looming fourth quarter event on a highly emotional topic of politics and presidential elections. Over the last six years, we tried to anticipate our clients' anxieties and address them in advance, focusing on what the data says historically, not what emotionally our feelings and our hearts say. Well in advance to the 2020 presidential election, we laid out the likely outcome in the financial markets into and after the election. No investors, of course, our team did not know in advance through the election what the outcome would be.

Starting point is 00:03:02 Would the GOP and Donald Trump win in 2020 and repeat his 2016 win, or would the DNC and their candidate, Joe Biden, finally accomplish his multi-decade goal of becoming president? We didn't know no one did in advance just like 2016. However, our team did know that most often it's not the candidates for president that matter most to the economy. The financial markets enter money. Rather, it's almost always a third-party candidate. A third-party candidate, Chris, who are the world are you talking about?

Starting point is 00:03:33 I'm talking about the Federal Reserve and their decisions over time have mattered more. Yes, investors, the third-party candidate determining the financial success of your markets and your money over the next four years in most every presidential cycle are more likely to be the likes of Jay Powell, Janet Yellen, Ben Bernacki, Alan Greenspan, and Paul Volker over the years, rather than President Biden or President. President Trump or some new candidate we know little about it this time. We've discussed the presidential election cycle well in advance of the election since 2020. In fact, we gave our clients the historical data of these patterns well in advance of

Starting point is 00:04:09 the rally that began in late October 2022 in advance of the third year election cycle, and then again in October of 2003, when markets re-accelerated up to new all-time highs. Here was the great data from Steve Settmire's group at Merrill Lynch, which we presented in early fourth quarter of 2003, about year four of a presidential cycle being a strong time for stocks. We were pointing out similar data for year three in 2023 into the fourth quarter of 2022. Here are the average monthly returns in year four, generally strong through August, then a little weaker into the election. Here's the nitty-gritty detail of every fourth-year presidential election year since the Great Depression in 1928. If you want to dissect the data to yourself,

Starting point is 00:04:54 it's all here for you. your year, you can pick your political party, and you can go do the research on the period to better convince yourself if you need to. Convince yourself that the third party candidate, not even on the ballot, the Federal Reserve holds a much bigger sway over the economy and the outcome for your money than the individual sitting in the White House. But investors, please don't fret thinking you missed it. You missed all the rallies as some new data from Steve Sutmeyer's group argues against a big sell-off in the fourth quarter this year. Investors, this data set is new to me and new to my research. Here's what Steve's data says. The first half

Starting point is 00:05:30 2004 was the 26th time that the S&P 500 rallied between 10 and 20% during the first six months of the year. This setup shows that the S&P 500 has risen in the second half of the year, 88% of the time with an average return of a little over 8.5%. That equates to 5925, and a median return of a little over 10%, which would equate to a little over 6,000 on the S&P. Here's that data set from Merrill Lynch. I find this to be quite interesting in that the Oak Harvest's optimistic Goldilocks scenario for the year in 2024, way back in the fourth quarter of last year, was 5,800 on the S&P 500 and near 6,000 in the first quarter of 2025. No guarantees, and I'm not saying that's the level I still think we're going to, as I do see some possible storm clouds

Starting point is 00:06:19 beyond August. But I do find this data compelling. Finally, investors, if after six years on a soap I haven't convinced you to try to remove your political ideas from your financial decisions. I must leave you with this chart of the S&P 500. And at the same time as you look at it, ask yourself, think back to November 2016 and to November 2020. Think way back then. Think about how you were feeling. Think about what presidential candidate you were supporting.

Starting point is 00:06:47 Think about what was being said by many financial TV networks about how bad things would be if XYZ won the election in 2016 or 206. Here's the charter of the S&P 500. I recall going into the presidential election in 2016, a few experts on TV were giving Donald Trump zero chance to win. Those who did didn't think the markets would do very well given his lack of political experience.

Starting point is 00:07:09 He won, Institute of the Tax Cut program with the GOP Congress. In his first year of office, the markets gained a little over 37 and a half percent from Election Day in November 2016 to the first quarter of 2018 peak. After meandering, for two years, the markets then went on to new all-time highs, gaining about 60% into the pre-COVID drop

Starting point is 00:07:32 and ultimately gaining about 70.8% into pre-2020 election late summer. Investors fast forward to the election in November of 2020. I recall hearing almost daily on many media networks that if Joe Biden won, it would start the Great Reset, whatever the heck that is, and financial assets would be rocked lower. Joe Biden won, and what have stock markets done since? The S&P 500 from Election Day until the first quarter 2022 peak in the S&P 500 gained 46.6%. If one takes out the very tip-top rally in early 2022, they gained about 39% post-election night the first year of his presidency. Almost the identical market returns for both presidents during their first 15 months. Okay, I'm going to zoom out longer term during their terms.

Starting point is 00:08:21 from the Election Day in 2016 until pre-election of 2020 summer peak in August 2020, under President Trump, the markets gained about 70.8%. From Election Day, November 2020 through last week, heading into later summer period where the markets normally peak, the S&P 500 under Joe Biden, has gained 68.42%. almost identical returns over almost identical time periods of three and a half years, wildly different policies, Donald Trump generally being more business-friendly, less regulation, lower taxes on business and consumers, less friction on business, X's love of tariffs and foreign goods. First, Joe Biden, bigger government, higher taxes, more regulation, more friction, more spending under the guide of investments. Opposite policies for the most part, but the stock markets have performed. nearly identical. Why? Because at the end of the day, like it or not, like the president

Starting point is 00:09:22 and his or her policies one day, the men and women behind the curtain at the Federal Reserve, Powell, Yellen, Bernacki, Greenspan, and Volker have magnitudes, more power over your financial returns than those sitting in Washington, D.C., whose situation and outcomes can largely come down to luck and good or bad timing of sitting in office. So if you're a retiree or near retirees still watching this video, with volatility in the market subdued at low levels and stock returns high for the last 10 years, if over the years you found yourself reacting emotionally in your portfolio to presidential elections and their uncertainty, now is the time to talk to your advisor, to walk through your plan. Give your advisor a call or call us here at Oak Harvest well in advance

Starting point is 00:10:07 of other investors' concerns what will likely be a third quarter soft-laning pullback that refreshes or the beginning of a much more painful economic and market downturn. I can't tell right now. Discuss how much risk is in your allocation plan under downside market scenarios just in case the economy rolls over in late 2024 and 2025, regardless of who's elected this November. Because while most third quarter selloffs are just cyclical corrections and short-term polebacks and otherwise long-term bull markets and economic expansions, it's virtually impossible to tell if that sell-off is a mild correction in an economic soft landing, or if it's the beginning of something more dire like it was in 2000 and 2008. I'll argue with all takers that it didn't matter who was

Starting point is 00:10:54 elected those years, Burscher Gore in 2000 or Obama or McCain in 2008. The ultimate winner was already dealt a pretty bad hand by the Federal Reserve and the economy by the time they were elected and came into office. Investors, if you're going to make reallocation decisions to shift money out of stocks and equities into less volatile assets, it's best to do it when indexes are up and volatility is low, not the other way around. If you're uncomfortable with a wider range of possible equity outcomes,

Starting point is 00:11:24 the Ocarvest Investment team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorbers for your stock portfolio. Information on this new strategy of ours can be found at OcarvestFunds.com. And finally, viewers, for those of you who've made it this far, I want to give a shout out to the entire Oak Carvest team.

Starting point is 00:11:44 The USA Today ranked us as one of the best financial advisory firms in 2024. The award is given to the top registered investment advisory groups in the United States based on two criteria. First, recommendations from individuals from among 25,000 financial advisors, clients, and industry experts. And then second, growth in assets under management over the past year and five years, respectively. I personally am looking forward to helping us move up the rankings over the coming years. From myself, from Corinne, who does the great graphics for the thumbnails from Eric's behind the camera, a whole team here at Oak Harvest. I hope you had a great Fourth of July yesterday and have a blessed weekend.

Starting point is 00:12:24 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

Starting point is 00:13:09 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 - It's Undebatable: GOP, DNC, or 3rd Party Candidate

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