Stock Talk - Market Correction or Bear Market? This Could Change How You See Aprils Drop

Starting point is 00:00:00 Investors, first off, I want to apologize that last week's video was so long. I'll keep this one shorter. I mean, why bother making a really long video with as much news and changes from the White House every few hours or every few days? By the time I write this, by the time it's reviewed by compliance, filmed by Eric, edited and posted, it takes about five days, and the world could change very dramatically by then. The SP 500 after essentially peaking December 6th, which was my birthday, just under 6,100, and me entering between 6,1, 25, and 58, 25 for three months into March, taking a frictional tariff policies of the current administration, the index looks to have made a low on April 7th.

Starting point is 00:00:42 That's a minus 21.4% peak to trough intraday move lower and almost 19% lower for using closing prices. Technically, based on conventional market definitions, this is a correction. but most watching their portfolios, heavily concentrated in technology, consumer discretionary stocks, know that many of their holdings and maybe their overall portfolios are in bare markets defined by greater than 20% losses. Investors, the trillion dollar question, yet currently unanswerable question, is whether April 7th was A-Low or the low for the overall S&P 500 index in U.S. stocks. X a few periods like the Great Financial Crisis in 2007-2008 and the popping of the speculative.com bubble frenzy in 2000, 2001, which did proceed longer and deeper recessions,

Starting point is 00:01:29 history says enough damage has been done, and one should be adding to desired positions over the coming weeks and months. Take a look at the S&P 500 chart from the end of the great financial crisis in 2009. We've been below the channel for a few months during the COVID lockdown and its recession, and we've been above the ascending channel for a few months during the euphoria of post-COVID reopening. More recently, we've gone from the top of the channel around 6,100, post-2020 presidential election, when most investors, including ourselves, were promised a carrot approached pro-growth policies and deregulation. But now we're down towards the bottom of the channel over the last three months as those initial

Starting point is 00:02:10 hopes were dashed. Instead, we got the stick policies of enormous and ever-changing tariffs, Doge cutbacks, and other frictional policies from Washington, D.C. Historically, if you aren't entering a prolonged recessionary period, the graphic would say it's time to be a buyer, not a seller. But Chris, the S&P 500 just passed its dreaded Death Cross. I know you might be thinking that. You can't buy it now. I know a few RIAs in the Southwest whose entire multi-billion dollar asset center management practice

Starting point is 00:02:40 were built on this one metric because it worked once for them. Their marketing spin and claim to fame or one hit wonder was, we got you out. Of course, investors, they fail to divulge that they never got their clients back, invested materially, and missed out on years and near decades of high stock returns over the last 15 years. Let's start with that death cross. That's when an asset's 50-day moving average dropped below its 200-day moving average. Despite the dramatic name, it's not a very reliable historical signal. Yes, it did perform well during secular bear markets, such as the Great Financial Crisis

Starting point is 00:03:14 and dot-com crash. but outsoed those types of long-term bear markets, its reliability is mixed at best. Maybe it used to work a lot, but with the advent of modern information dissemination and electronic trading, price moves both up and down, happened much quicker. According to Bruce Wood Capital and others, since 1950, there have been 37 death crosses in the SP 500. While the deaths cross did flag major bear markets like 1974.com bust and global financial crisis, Most of the time, it isn't useful.

Starting point is 00:03:47 The facts, statistically speaking, 78% of all death crosses end, with the markets higher, not lower. The average return during your death cross is actually plus 2%. And there have only been four instances when the S&P 500 was down more than minus 10% at the completion of the death cross. Seems a bit of a lagging indicator to me.

Starting point is 00:04:08 For context, during the third quarter of 1998, around the time of long-term capital management hedge fund crisis, the ongoing dot-com buildout, the S&P 500 declined by more than 21%. Technology and semiconductor stock saw significant drawdowns, and the U.S. dollar fell by roughly 10%. The period also coincide with the so-called Death Cross formation. While the Federal Reserve did cut rates back then, the S&P 500 eventually retesting its lows over the following three to four weeks, the index went on to reach new all-time highs over the subsequent 12 to 18 months. Of course, past performance is not indicative of future results.

Starting point is 00:04:45 We've previously shared this 1998 long-term capital comparison, mid.com overlay path, but here's another take on the same potential outcome from Crystal Barker, the Fisher Investments. I know you're saying to yourself, it's different this time. Investors, maybe it is, but so far, it looks and feels a lot like it did back then. The S&P 500 dropped about minus 22.4% peak to drop in about two months back then, end to peak global uncertainty and hedge fund blowup and forced liquidation. The S&P 500 recently felt almost exactly the same percentage peak to trough using intraday highs and lows. But Chris, I'm sure back then, with the dollar being the reserve currency, there was a flight to the safety of the U.S. dollar.

Starting point is 00:05:27 Everyone wanted to hoard dollars. I'm sure the DXY rallied back then. Well, the answer back then was, no. It played out nearly exactly the same. The dollar declined almost exactly minus 10% back then. during long-term capital management. Okay, but during dot-com, growth was great. I'm sure oil was doing fine, but now it's been dropping for almost a year. Big difference, Chris. So I looked it up, pretty much the same. Oil was a dog in 1998 and declined into long-term capital in October

Starting point is 00:05:56 and troughed on that day in 1998. As much as we've heard for two weeks that the Fed is on hold and heard President berating the federal chairman to cut rates, the Fed is on a rate-cutting cycle. They are currently paused and not cutting, like most of the rest of the world, precisely due to short-term inflationary impacts of this administration's own tariff policies. What I heard in Powell's speech was, I want to cut rates. I'm just waiting on the reason. Investors, he mentioned real-time inflation break-evens flat to dropping. That's a Federal Reserve chairman who's watching real-time data, not just survey data, which has rarely been predictive. Investors have rarely been this fearful and sentiment this negative. And historically, when a

Starting point is 00:06:38 spend at these levels, you've been better off buying and walking away for 12 to 18 months than selling. For Lance Roberts at RIA here in Houston, net bullish AAI sentiment as low as COVID market lows, Fed taper tantrum lows, and yes, your great financial crisis lows in the first quarter of 2009. Looking back, would have you been a better off buying or selling with perfect hindsight? Investors, I know, nor does anyone else. I know that historically, if, and I mean if, if we're not entering recession, an economic recession called for many times over the last four years by many bears and doomers, then those early April lows are the numbers one should trade against, that one should be buying and

Starting point is 00:07:23 adding to stocks on any forthcoming pullback or retest of that area. Seems to me, Friday, April 11th was likely the low in many things for the next nine to 12 months. I know that earnings visibility is almost non-existent in the short term. However, it always is at the lows. Remember, stocks are discounting mechanisms looking forward into the future. Great shot from Josh Brown, another from Michael Batnik, and their irrelevant investor reminds investors how far in advance stocks bottom before the economy improves and earnings visibility returns. Price bottoms almost nine months before earnings do in bull markets. As long-term investors like to remind newbies, the market doesn't wait for an all-clear sign. Stocks anticipate turns. The market

Starting point is 00:08:07 doesn't just wait. We hear a lot from prospects. The markets are too volatile right now. I'm going to wait until things settle down. I mean, I get it. When things are moving this fast, it feels horrible. However, historically, this is exactly when investors should be adding to positions to their long-term allocations, not retreating. Why? Because time is on your side. Volatility is ramped up because there are so many traders being forced to sell at the lows. Being de-rised, being blown out for taking excessive risks at the wrong time. A great table from Jake Capell at sentiment trader shows the returns in the NASDAQ 100, that's the tech-heavy index, after the VIX crosses back below 45, like it did early Friday, April 11th. Yes, you're reading those numbers correctly.

Starting point is 00:08:52 A 94% one-year win rate with a 42% average return, median return of over 46% at a very high hit rate. And yes, investors, this does include the long-term capital blowup at the time in the late 1998 during dot com that we previously noted. Historical volatility spikes like we are seeing are buy and mold points, not pull the rip cord and eject points. No, there's not a lot of good economic news out there right now. These are the times that are stressful for investors and those cared with managing other savings and financial plans. Can the markets go lower? Of course, there are no guarantees in store. stocks. But extreme levels of volatility, historically, equities bring long-term assets whose returns

Starting point is 00:09:35 are measured in years, not weeks and months. It's been better to add to investments slowly, rather than panic and pull the rip cord. Investors, regardless of the path for the economy and the 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. Until next week, have a blessed weekend, and know that the Oak Carbis team is doing what we can to play. for you and your family's future, regardless of what stage you're at in your career or in retirement. 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,

Starting point is 00:10:16 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 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.

Stock Talk - Market Correction or Bear Market? This Could Change How You See Aprils Drop

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