Stock Talk - Market Analysis: Possible 2000s-style Hard Landing and Recession? Scenario Two

Episode Date: April 12, 2024

Check out the contrasted scenario from last week that could be shaping the 2024 market landscape. Drawing parallels between the current economic climate and historical events, I dissect the potential outcomes of a "Goldilocks" soft landing (look at last week's video) versus a grim hard landing reminiscent of the dot-com bubble aftermath. Through a meticulous examination of past recessions and market behavior, I'm going to paint a vivid picture of what could possibly lie ahead, offering insights into key indicators and potential S&P500 trajectories. With a keen eye on real-time data and geopolitical factors, I provide investors with valuable foresight into navigating the intricate maze of market volatility, armed with strategies to weather potential storms and seize opportunities in an ever-evolving financial landscape.   #stockmarket2024 #sp500forecast #hardlanding   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. 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 last week we recap the first quarter of 2024 returns. The S&P 500's best first quarter performance since 2019. First quarter returns placed it in the top 10 over the last 54 years and in the top 15 since World War II. Investors, this is how stocks behave during a soft landing as we first discussed back last October. We covered what the remainder of 2024 in the first quarter of 2025 might look like for stock markets under a continued soft landing like 1995.

We called this scenario one for the following year. This is the Goldilocks run continuing. This is a run of 2 to 3 percent real growth and 2 to 3 percent inflation outcome. Not too hot, not too cold. Recall in 1995 Allen Greenspan, after much anticipation and waiting, hinted at interest rate cuts in June, but then only cut rates one time in July during the

the year and the stock markets were steady, eddy, up until they finally retested the upward sloping 50-day moving average in October. Then they resumed their March higher throughout the end of 1995 and the first half of 1996. Investors, the second scenario I must present is quite the opposite outlook of the Goldilocks. This is a bearish, hard-landing outcome of the Federal Reserve holding interest rates too high for too long and causing a recession out nine to 12 months from now. the hard-landing scenario, the stock markets and the economy experience post the dot-com run in the first quarter of 2000. Investors having lived through and managed money during that time period, I cannot deny the similarities of many things going on in both our economy and the stock

markets now and then. Back then, I recall, and the data shows that the U.S. consumer was very strong into Christmas 1999 and January 2000. But then, someone turned out the lights in many areas at consumer spending in February of 2000 and the rest of the year. And most of retailing and consumer stocks were horrible stocks to own. Homebuilding stocks were one of the few groups that held in there, but most stocks like Nike and even McDonald's fell out of bed in the first half of 2000. We've seen very similar patterns this year to date. Back then, energy stocks, along with semiconductor stocks and dot-com infrastructure buildout plays such as Cisco and Cascade were huge market winners in the first quarter of 2000. We've seen almost identical leadership so far this year with those previous

cycle winners replaced by Super Micro and a few others. In the semi-space, everyone recalls the parabolic run of Qualcomm in the first quarter of 2000 on early build-out of wireless internet and the smartphone. This year's big winner in the semispace is Nvidia, which was also a huge stock back then. I've been posting the overlay of semiconductor space for well over a year. bullishly in late third quarter of 2003, while many others were talking crashes or bubbles. Clearly those calls were not just early, but wrong at that point in time.

Investors, unfortunately, the dot-com cycle bubble did come to an end in 2000 during the excess speculation and tech stocks and massive overvaluation in many of the market leaders. In fact, I can tell you exactly where I was standing the day tech stocks peaked in March of 2000. See, back then, the Fed was very aware, of speculative juices flowing in the markets and wanted to cool the markets in 2000,

even though it was an election year. The economy in the stock markets peaked in the late first quarter of 2000 and did a lot of chopping around until mid-third quarter late summer when the economy succumbed to tighter financial conditions and double and triple ordering and tech spending was front and center and the markets entered its normally weak pre-election time period. Take a look at the daily chart of the S&P 500 and into the second quarter of 2001. The dot-com bubble was popping. This was pre-Bush-Gore presidential election controversy, both then and after. Now, take a look at the weekly chart for the S&P 500 during the same time period. Investors, that's what a bare market top looks like most often. It usually doesn't happen

in one month like the COVID crash. It usually is a series of lower highs and lower lows cascading down over 9 to 12 months. After the peak mid-March 2000 at 1553 Cash S&P 500, its first low was in March of 2001, almost exactly a year later at around 181, which is exactly what I tell investors to expect during recession. What's that? Minus 30%. Suppose you were lucky enough to sell the exact high and unlucky enough to sell the short-term low. That was minus 30%. almost to the first decimal. Yes, that's a very normal recession. Not a great financial crisis recession or a great depression recession and not even close to a bubble collapse recession. So investors, scenario two, hard landing, normal recession repeat. What's the S&P 500 target on the downside

given to where we sit? Well, minus 30% from here would be around 45 VIX triangulating to 3650 to 3,700. investors, this would be a bare market beginning in the second half of 2024 outcome. This is the economic hard landing scenario for the rest of 2024. This is higher volatility, sell the rips. It's a secular bare market market. This is the real growth rate slowdown we're seeing behind the scenes in the real-time data, which morphs into more than a slowdown in the second half of 2024, just like it did in the second half of 2000, post.com buildout.

While this is not our expected outcome, this outcome would be very rare for the fourth year of a presidential cycle, as politicians are busy trying to win votes and the election by keeping the economy chugging along. It did happen in 2000 and 2008 as well. This low index level volatility regime we are now in, most likely won't last another one or two years straight, given the current weaker consumer spending in the U.S. economy and foreign geopolitical turbulence. However, there are current few signs of an appending top, and it appears that Federal Reserve may be watching real-time data, not just horribly inaccurate government data releases. Those are our thoughts on a pessimistic scenario for the rest of 2024 and early 2025.

Next week, I'll give you a bit of the same rundown on scenario three, presenting what a muddling-by scenario might look like. Right now, our team doesn't see the leading signs of a future recession this year, but we can say we will. have won, once again, probably during this decade, and a recession in the stock markets is a minimum of minus 30% down. Right now, that would equate to around 3650 to 3,700 on the S&P 500. Back where we were in October of 2022, when we did experience an earnings recession in the market, for investors or retirees uncomfortable with a wider range of possible equity outcomes, the O'Carvis team does have a new equity strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges that act as shock absorbers, or a little

bit of insurance of a stock portfolio. If you're interested in this strategy, information on this can be found on our oakharvestfunds.com website. From the whole team here, from myself, from James, from Charles, from Joy and Jessica, 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.