Stock Talk - Stocks at All Time Highs in August - Pleasantly Surprised: Stock Market Update, Friday Aug 22, 2025

Starting point is 00:00:00 Okay, investors, let's get right to the point. I am surprised how high we are in the S&P 500 at this point in August, 6450 as I wrote this, but I'm pleasantly surprised. While our team discussed past V-bottom rallies in stocks months ago, paying attention to the late 90s.com internet infrastructure buildout, the Y2K period versus our current AI infrastructure Federal Reserve cycle, I didn't have high confidence, we would mirror it out beyond the four-month window. particularly during late summer months when markets tend to slow, reverse, and decline due to lower stock buybacks, earnings uncertainty, and lower liquidity. That said, overlaying the minus 21% S&P 500 drop caused by long-term capital management blowing up in October 1998, early mid.com buildout, with the minus 21% S&P 500 drop April to 2025 caused by Trump's Tariff Liberation Day, we continue to mirror.com almost to the weekend day. We had the V-bottom in stocks from mid to late April well before the historic rally took cold and while many others were talking about doom and crashes.

Starting point is 00:01:09 However, I had expected a summer stall and pullback in stocks of a little over 5%. Call it back down to 6125, 6150. We haven't gotten that so far. In fact, we barely got minus 3.5% peak to trough decline into August's first low of around 6212. And that's if you were perfect. Take a look at the updated overlay of the SP 500 back then and now.

Starting point is 00:01:33 How remarkable is this? We are still mirroring the same pattern back then during dot com, almost to the day and week. Investors looking back in time, the percent drop during the first stall after long-term capital markets v-bottom four months out was only three and a half four percent in the S&P 500. If one uses as the drop from our high of 6427 on July 31st,

Starting point is 00:01:55 one gets 62, on the cash S&P 500. The low print so far has been right around 612 so far, almost exactly 3.5% off the top. Given what I'm seeing in earnings, sentiment, seasonality cycles, institutional positioning, and volatility markets as well as Federal Reserve interest rates to come, prior V bottom moves, I think it's likely that August 1st print was the low for the second half of 2025. And while I still think we should pull back lower to test that range of 6,200 6250, it's more likely the fourth quarter of 2025 and first half at 2006 will bring higher stock markets than most investors think. Many investors are worried about interest rates. Many have come up

Starting point is 00:02:38 with wild theories that foreign selling will cause a massive bond market sell-off, sending long-term interest rates much higher. Investors, these theories have been out there for years now, and while foreign holders have been net sellers for years, it's unlikely, it's had much impact on overall interest rates. Investors, volatility has been in a downtrend, both real-offer, and actual stock volatility and bond volatility are trending lower, not higher. The cost of hedging stocks a few months out is almost two to three times as expensive as current actual volatility. In the bond market, the move index has now broken below 50, and regardless of what you hear on TV, it's declining, not rising. This has historically been a great thing for uptrends and stocks

Starting point is 00:03:19 over months and quarters. Take a look at the chart of the move index. Remember that lower bond volatility is key to leverage players buying more assets as treasury bonds are the lowest risk collateral in the financial markets. Higher interest rates are not guaranteed to hurt stocks. If they were, explained 6,400 on the S&P 500 with interest rates, 200 to 400 basis points higher than they were four or five years ago. We're at new all-time highs, up about 10% year-to-date, and the Fed is paused. Think about that. All the bearer calls for market collapse is the Fed paused or reduced their balance sheet and we're near 6450 on the cash S&P 500. The Fed's balance sheet has shrunk by $2.6 trillion since the beginning of quantitative tightening. We're in a bull market. Short-term volatility

Starting point is 00:04:05 has collapsed and that's without the Fed cutting. Realize volatility is around 7 to 8, spot VIX index is around 15 and every time it gets near 21, sellers come into those markets and buyers flood in to buy stocks. The cost of forward hedging are actually very high relative to actual volatility. Can and should volatility spike some over the next three to four weeks and stocks declined somewhat? Yeah, we had that Jackson Hole speech today. Some Fed meetings coming up, third quarter earnings blackout window coming, and lower overall liquidity. Look at the negative reaction to tech stocks to small changes in forward outlooks, applied materials among others. But believe it or not, the near exact same thing happened at this point in the dot-com run. Take a look at the historic

Starting point is 00:04:49 overlay of the SOX Semiconductor index during dot com and currently for those still watching this video and here's the overlay of AMAT then and now i mean is that deja vu or what amat just dropped over 20 percent into and after its second quarter earnings clearly the markets were surprised but guess what back in dot com the same overlaid quarter amat dropped minus 22 percent on similar negative earnings reaction if you believed in this model a sideways or down downward movement of three to five weeks is very possible, as inventory and stock gains are digested as no one can dispel the notion of double ordering, pulling forward in demand, or hoarding. Of course, what followed would then be a significant increase in the fourth quarter

Starting point is 00:05:35 and 2006 orders and stock price performance. You might not have believed history is repeating, but someone does, or the market overall does. What could possibly cause this kind of parabolic up move in 2006, my friends ask. I don't know. All I can do is guess. Here's some guesses. The Fed cutting rates. Trump gets his dubbish Fed chair in April, May, 2006. That's six to eight months from here. AI investment remains strong, and tech earnings and revenue come in better than expected. The Trump accelerated depreciation tax incentives receive additional tailwind, driving spending on equipment and personnel up. Russia, Ukraine, it that war, I don't know. It gets solved and China starts opening up again to

Starting point is 00:06:16 try to stimulate its stalled and lagging economy. I don't know, those are just guesses that are high on my list of reasons made out in the future in 2006 for major new all-time highs coming. Expect breath to widen materially if and when the Fed cuts rates. The Russell 2000, those are generally small-cap stocks, loves unforced Fed rate cuts. Maybe be prepared in advance of the fourth quarter of 2025 to hear about the chase for performance into year-end before it takes place. Investors, even small-cap stocks tend to work, and lead for a while, most periods when the Fed cuts rates and many institutions are behind their benchmarks like they are this year in 2025. Come late September and early October, most of those

Starting point is 00:07:01 S&P 500 targets for year-end in 2006 as well are likely moving on up higher, not lower, for the fourth quarter and beyond. Investors, regardless of the path for the economy and financial markets in the next few months, investment team here at Oak Carvis will be here, crewing this ship and adjusting our models where we can. Tell next week, have a blessed weekend and know that the investment team here is doing what we can to plan for you and your family's future regardless of what stage you're at in your career or in your 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 00:07:41 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.

Stock Talk - Stocks at All Time Highs in August - Pleasantly Surprised: Stock Market Update, Friday Aug 22, 2025

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