Stock Talk - The Heat of Summer: Don’t Let Seasonal Shifts Derail Your Strategy

Starting point is 00:00:00 Investors, the first half of 2025 is behind us and what a six months it has been. Post-election rallied, followed by a minus 20% bare market cyclical correction, followed by a fast and furious, historic, nod-fed-induced V-bottom in stocks. History would say that the initial V-bottom move in stocks off the bottom that started the second week in April is now about 95% complete in price and maybe 90% complete in time. However, while stocks might look overvalued and as charges call them overbought, history says that neither factor will tell you that the bull market for stocks that we've been in since October 2023 is itself over, that you should dump your stocks and hunker down.

Starting point is 00:00:44 While our team expects the usual summer slowdown and likely third quarter pullback in stocks to persist into late fall, history suggests that if this happens, it most likely will be a buying opportunity for year-end 2025. forward returns in stocks in 2006. Many in the financial press try to scare investors even when stocks are making new all-time highs. Investors, new highs are rarely bearish. In fact, new highs tend to cluster and trend, so making new highs historically has proven good news for further positive returns over the next nine to 15 months. A great chart from Ben Carlson shows the clustering of new highs in bunches. The average year since 1990 has had 20 new all-time highs in stocks in a year.

Starting point is 00:01:25 In fact, more great data from Ben, the average one, three, and five-year returns in stock since 1950 has been marginally higher, not lower, when investing at all-time highs than other days. The pattern for the overall market remains bullish, and yes, historically, July is one of the better return months for the S&P 500, with earnings and buybacks right around the corner. Up and to the right is good. New all-time highs are not bearish historically. That said, expect this pace to slow, What groups might slow? Well, technology names that have led the rally usually slow their gains late in the third quarter. I would expect much the same this year, with semiconductors likely stalling,

Starting point is 00:02:05 and maybe soft or in healthcare taking up the lead. Here's the overlay of the SOX Semiconductor index in 1998 and now. We called for a semi-rally while many others were hunkered down in April in May and called for lower stocks or risk off. We got our rally. We don't expect a broad semi-sell-off in the second quarter, but do expect a two to four-month sideways consolidation,

Starting point is 00:02:25 consolidation after the second quarter earnings are reported in August. This should be the AI pause that refreshes. We got the same dynamic playing out in late 98-99. Maybe in the next stage, higher on semis, require a China-U.S. Trade Agreement, or maybe it's just time to digest inventory with concerns of pulling forward in buying in the second quarter of this year as many companies were trying to beat the new tariff regime. I don't know. But history suggests we are likely only about one-third done with an 18 to 24-month rally in semis.

Starting point is 00:02:57 A three-to-four-month stall and consolidation, followed by one more big upward run in late 2025-26? Sure. Investors, we expect a normal late-summer pullback in the markets, but investors, you most likely won't see those low levels of April again for quite some time, if at all, this year. Many financial institutions and investors

Starting point is 00:03:18 got too bearish near early April lows and de-risked and are already way behind the performance curve in the second quarter. This plays out as our team has stuck with our 2025 year-end target with 6,600, even as stock sold off into April. And most strategists slash their targets from over this number to the low 5,000s and are now raising them once again. Can the markets pull back to 6,000 later in the summer? Sure. Yes, it can. This would be quite normal post-August. Does that mean you shouldn't add to stocks particularly if you're younger and in saving and accumulation mode?

Starting point is 00:03:52 No. You rarely can pick both the average. absolute level in price and time on both the buy side and the sell side, and again on the buy side, particularly in gross stocks, as we've covered previously in our prior videos. Once again, new all-time highs are not historically bearish. Bull markets and stocks are characterized by a healthy appetite for risk and broad participation. Investors, this bull market isn't just U.S.-centric like it was for nearly 10 years. Nearly three-quarters of the countries that make up the ACWI, All-Country World Index are finishing June at new highs, qualifying as broad participation.

Starting point is 00:04:31 The ACWI is making new highs while almost 90% of the global markets in the index are above their 50-day moving averages. The same percentage is above their 200-day moving average, which has new cycle high. All very bullish, securely. Investors, while many who miss the rally are out there justifying their absence due to the markets being overvalued in their fundamental work or overbought in their charting work, remember that neither of these two metrics or indicators is a good timing tool in a secular bull market. Overbought can stay overbought and usually does for quarters and sometimes years, not just a couple of weeks or a couple of months, while valuations usually seem justified after stocks rally as earnings come in better than bears and pessimists had feared.

Starting point is 00:05:17 A late summer pullback? Sure. A pause? Okay. A rotation? Yes. We think so after second quarter earnings. A retreat back to April lows or worse? Highly doubtful. Only if an unforecastable black swan hits, and remember investors, they call it a black swan for a reason. It's unforeseen. It's unforecastable, not in the thoughts or minds

Starting point is 00:05:39 or numbers in the economy. It's the unforeseen random stuff happens sometimes trade that keeps so many academics in the markets employed charging fees for tail risk funds. Regardless of a possible summer slowdown, a normal market pullback, or even the event-driven bear market the latest Trump tariff tantrum cause, know that regardless of the path for the economy and the financial markets, over the coming months, the investment team at Oak Harvest will be here. Until next week, our thoughts and prayers

Starting point is 00:06:08 go out to all the families who lost loved ones and all those affected by the horrible hill country floods here in Texas last week. If you're an Oak Harvest client who has been affected, reach out to your Oak Harvest advisor and let us know what we can do to help. If you aren't a client, but we're affected. Our thoughts and prayers are with you and your families. 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

Starting point is 00:06:50 may not be right for you, and nothing in this point. 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 - The Heat of Summer: Don’t Let Seasonal Shifts Derail Your Strategy

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