Stock Talk - S&P500 2H2024…and beyond! Potential Paths, Comparisons, and Candid Cautions to Consider

Starting point is 00:00:00 Investors, happy New Year. While the Old Carvis investment team alluded to our first half, 2024 outlook, as far back as the fourth quarter of 2022, and released it in its entirety over four videos in late 2023. Many clients and prospect always ask for more. They ask our thoughts on longer-term time horizons that stretch out beyond six months, a year, or even multiple years. More often than not, these types of long-term forecasts are a W-O-T. That stands for waste of time, as one's accuracy delays exponentially with time. This is even though many strategists will try to fool their followers with guesstimates with false precision. What do I mean by false precision? I mean, the forecasts may turn out to be off by

Starting point is 00:00:44 hundreds, if not thousands of S&P 500 points, like many of the 2023 forecasts. But if I throw in extra digits, for example, I've seen strategists carry their targets out to single digits and decimals, Say, the Dumer Forecasts for 3125.5 for 2023, it reads smart to some people. Okay, for our O'Carvis'2020 outlook, I coined the term the old normal. Yes, I blatantly changed or plagiarized to take your pick, the overused new normal phrase made famous by the always eloquent economist, Mohamed L. Aeron. Whether by our team's joint knowledge and experience, or hard work, analysis, or pure luck, the Old Carvis 2020 market forecast turned out to be nearly on point in both price and time for the entire

Starting point is 00:01:33 2023. To appease those who keep asking, and with full disclosure, the Oak Harvest investment team might change our outlook or collective minds at any time, I'm going to lay out visually what the second year, 2024 of the old normal might look like throughout the coming year. This is considering the three factors we presented in our first half, 2024 outlook. volatility, economic growth, which is slowing in the fourth year of a presidential cycle, as well as a fourth factor seasonality. For this video, I'm using the cash S&P 500 that closed the year around 4770, not the S&P 500 futures market that closed at 4820. The difference being a little over 1%, which is attributable to the option premium for March of 2024, which is the futures contract that most people are trading. Take a look at the weekly chart of the S&P 500, dating back over five years to pre-COVID.

Starting point is 00:02:28 You can see that COVID crash in the late first quarter of 2020. You can see the recovery to new all-time highs in December of 2021 near 4,800, which is where we are near today. The subsequent minus 25% drop in the first half of 2022 in nominal terms and minus 35% drop in real terms, as GDP went negative for two consecutive quarters. But of course, politicians didn't want to call that one a recession. And then the subsequent rally that began by basing in the second half of 2022 and accelerating upward, the first half of 2023, correcting 10% during the summer of 2023, and then the late October low and rally into the new year. I've got to let viewers know for full disclosure, I do not have any chart technician designations by my name. I'm not a trained professional in the area of charting. However, I have done

Starting point is 00:03:18 this long enough to know, historically speaking, it would be very rare to break out to new all-time high. and stay there, given, one, we're entering a new year, when many investors likely want to recognize gains they've deferred until the new year. Two, knowing that many retail investors who have suffered through the last two years of little to no net gains since December of 2021, will look to sell some stocks against their old high just in case this proves to be the dreaded double top formation, and then three, knowing we are just about to enter the fourth quarter of 2003 earnings season, and given the reaction of early reporters like Oracle and FedEx, many large investors will look to sell first or shoot first and ask questions later on any weakness in management's 2024 forecasts and

Starting point is 00:04:06 squishy outlooks. Zooming in a little more closely, let's take a look at the Daily Chart of the S&P 500. We can get an even better picture of where we sit or stand or stall. As much bullish talk as there's been about the second half in December, I warn those who waited until Jerome Powell flip-doveish on December 13th to buy stocks that you might be regretting that decision very soon. Why? Because regardless of what you've heard on TV recently, the moves up in November and December, while uncommon are not unprecedented, particularly for this stage in the economic and interstate cycles. Our team discussed in advance of this eight to nine week rally that regaining the entire summer loss in only four weeks was likely rallying from 4150 to 4,600 and recovering back to near

Starting point is 00:04:52 all-time highs over the next four weeks in December was also the most likely outcome. The good news is these rallies usually last almost exactly five months in time. If our current rally, which started on October 30th holds true, then it would set the tone for an end of the rally around March. The bad news investors, months three and four usually contain one or more pullbacks of three to five percent can even include a correction of over 8 percent before then rallying to new all-time highs. For this type of analogy, look no further than, yep, you guessed it, the first quarter of 2000, post-1999, nearing the internet bubble top, which is why I do not share others' enthusiasm for how much the normal monthly pattern for year four will hold in 2024. Once again, take a look at the big data on the full year returns for the fourth year of a presidential election from Merrill Lynch and Steve Sutmeyer.

Starting point is 00:05:45 And here are the finer monthly details from Steve's group as well. Choose your own adventure or analogy. The one we've been using for quite some time has been since October 22 mirroring 1999. When looking at the fine details of the last hundred years and comparing our current cycle that started in October 2020, our work continues to say that we are mirroring a cycle of October 1998 through March of 2000, the internet.com bubble. In mid-December of 2003, Jerome Powell talked quite six. Similarly, to Alan Greenspan speeches in December of 1999, as both tried to calm the bank markets for a year-end, give the bank's better year-end liquidity and balance sheet mark-to-market positions.

Starting point is 00:06:31 Alan Greenspan then came out in early 2000, once again hawkish, volatility ramp quickly, and the market's corrected for eight weeks before going on to make their dot-com bubble highs from mid-march to the end of March, depending on which index you trap. The good news, under this pattern, as we've said for quite some, some time, all-time highs of the S&P 500 are likely in the first half of 2024, most likely in late first quarter, with the S&P 500 nearing 5,000. The bad news is that under this scenario, and under most fourth year of presidential cycles, another 100 points on the S&P 500 is about the most one could hope for for the rest of 2024. Call that S&P 5100, and often the market declines

Starting point is 00:07:17 into the election as volatility increases, the economy slows, and investors lose their conviction. Here's a rough picture of how that scenario might look in price and time on the S&P 500 on a chart for 2024, year two of the old normal. No guarantees, and we can and most likely will change our views over the next six to 12 months. Investors, wait, you're not satisfied with that? You want even more? You want us to walk out on a ledge no one should? You want to hear our thoughts on year three of the old normal? already? Man, you're making this one hard. Okay, here it is. Just you and me. Come here. Don't tell anyone else. It's just you and me are a little secret, right? Okay, here. I'll tell you. Ready?

Starting point is 00:07:59 Here. I'm going to whisper it. So no one else hears. Ready? I don't know. No, really. I have no idea. No one does. No one really, believe me. We're friends, right? We have to have some credibility here over the last five years. Because we've been doing this together now five years. And given what we message in late 2022, going into 2023, largely happening in both price and time. Here are my current thoughts of year three of the old normal at 2025. The S&P 500 will be somewhere between 3,250 and 6,000. Yep, you heard that right. How do I arrive at what looks like to be two huge tails? Because I don't know. On the downside, the S&P 500 equals, I don't know, 3,325 and 2025, which would equal a recession hitting the U.S. economy due to things like long and variable

Starting point is 00:08:47 lags by the Federal Reserve interest rate hikes, a mess in the U.S. presidential election causing a halt in economic growth, or some big international event like China invading Taiwan or Russia expanding its war into Europe beyond Ukraine. Investors, minus 30 to minus 35 percent losses in the S&P 500 in real terms is historically a normal recessionary outcome from stocks. On the white, wildly optimistic side. The S&P 500, 2020, I don't know, 6,000 or greater, which would be Goldilocks outcome. What would Goldilocks look like? It would be us sustaining 4% GDP growth comprised of 2% real growth and 2% inflation. Investors in that case, the 10-year treasury might trade with little to no volatility near 4% for all of 2025. This would give Bulls a reason to say

Starting point is 00:09:36 that 1 over 0.04 would be the right PE multiple. 25 times earnings in 2020. with earnings being underestimated because AI technology turns out to be a productivity boon for corporate America on the expense side, or maybe the 2017 tax cuts that are set to expire at the end of 2025 were extended by the next administration and Congress. That's Goldilocks. That's a replay of the roaring 2000s that a few economists have spoken about. That's S&P 5006,000 or higher at the end of 2025, 2006. Possible? Sure, probable, not currently as I see it. So that's it. For those of you who are asking, asking for more, just between friends, there it is. With absolute uncertainty of the future beyond the next six months, my thoughts on what if and what the future may hold. As of now,

Starting point is 00:10:27 I'm certain that the future is uncertain. And that's the bad news. The good news is our in-house investment team has just released a new tool that is structured to help investors and other RIAs better manage and better navigate through more uncertain times. That may be required to use more tactical decisions in one's investments. If you're interested in learning more about this, go to oak harvest funds.com to find out more. From the whole team here at Oak Carvis, have a blessed 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.

Starting point is 00:11:13 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.

Stock Talk - S&P500 2H2024…and beyond! Potential Paths, Comparisons, and Candid Cautions to Consider

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