Stock Talk - The Road Ahead: December’s Market Forecast and Investment Strategies to Consider

Starting point is 00:00:00 Investors, it's the day after Thanksgiving and I hope you've recovered from a great holiday with friends and family. The old normal keeps playing out in 2003 almost to the day and week. That was the title of our 2003 market outlook penned way back in December of 2022, and that's what we continue to see year to date in the stock markets, regardless of the doomsday calls throughout the year. Given the timing of this taping, the data is three or four days late. But here's a chart of the S&P 500 post-November option expiration on Friday, November 17th. If it looks familiar, it is. It's near the exact same pattern and outcome one would expect under the old normal we discussed all year. Take a look at the overlay of the S&P 500 with the same period since our October 2022 lows overlaid with October 1998 lows

Starting point is 00:00:50 through the internet bubble peak in 2000. Investors, we've compared these periods all year as it was also an aggressive Fed rate increase period, followed by a pause. and then additional rate increases in 2000. If you didn't live through it, here are two articles from March of 2000s. You can find a link to these articles in the description below. Investors, you'll see very similar wording

Starting point is 00:01:12 to our Fed's current language. The first article is about their willingness to re-accelerate interest rate hikes in the first quarter of 2000. The second article is one refuting the Fed's need to combat rising wages back then. Both articles sound eerily similar. to what's going on now with FedSpeak. In fact, they sound so close you might think we're living

Starting point is 00:01:35 in a parallel universe. This week's title is one of giving thanks in 2023. Despite of all the global economic and social angsts in the world in 2003, the team at Oak Carver's forecast a return to the old normal financial markets almost exactly a year ago in the fourth quarter of 2022 for a 2023 outlook. For 11 months, that's what we've gotten. I'm giving thanks for helping educate our O'Carvis clients and prospects, calming their nerves and keeping them largely in their seats for 2003, despite ongoing political, economic, and social turmoil here and abroad throughout the year. What's the rest of 2023 look like under the old normal? It looks like possibly one sharp, call it five-day, eight trading days drop in point terms for the S&P 500, yet very small on a

Starting point is 00:02:22 percentage term, into the final market on close, that's MOC for short, low as a market buying opportunity. That would be followed by a sharp reversal upward towards 4,600 in December and close to all-time highs of 4,800 near year end. In fact, by the time this video hits YouTube, a quick pullback may have already happened. Why do I think this is likely over the next few weeks? First, the dollar index, which we've discussed many times as a key driver of trading positions and earnings over coming quarters has gone from overbought to oversold in just two weeks. Take a look at the chart of the DXY Index, which represents the trade weighted dollar index. We've discussed the DXY topping during the end of October in our prior videos. We've discussed it being the primary driver for a

Starting point is 00:03:09 November and December at stock rally while many others were out in mass talking death crosses in the stock market and a 1987 crash comparison, neither of which mattered or happened. The dollar is now oversold on support. I would expect the Dixie, the DXY index, the dollar, to rally for a few weeks, putting pressure on latecomers to the rallies trading positions. In prior videos, in mid and late October, our investment team discussed just how, as the financial news networks had discovered the importance of real interest rates, after ignoring them for 12 to 15 months, those real interest rates were peaking. They had broken their uptrends, and they were declining, and that would provide ammunition for gross stocks to rally in November and in December. Take a look at the chart of the

Starting point is 00:03:52 five-year real interest rate. Those real interest rates, too, have rallied back to support, and I expect them to sell off for a few weeks nearing the end of November, providing a headwin an excuse for stocks to pull back for a few weeks. Frequent consumers of Oak Harvest Investment content know that our team looks at volatility differently than others. We look at different metrics than other traditional equity investors who talk about it in the financial news networks. Our team has a significant industry experience running many complex equity products, including long-short mutual funds and equity hedge funds. I look at volatility futures and options.

Starting point is 00:04:29 Take a look at the chart of the volatility futures contract that is traded. No, it's not the Spot VIX index, which is not traded, but widely discussed as a predictor of stocks by many financial market commentators. Since the October 27th low, forward volatility is dropped by about five points, and it, too, is now on a level of support, like the dollar and like real interest rates. Short term, it too is oversold and on support, and we would expect some institutional managers to come into the markets and hedge their portfolio against future market declines through the year end in the coming weeks. I mean, if you are up big year to date in performance and your compensation was dependent on performance, would you risk hanging around for

Starting point is 00:05:09 four weeks? Most hedge funds who have having great years wouldn't. Investors, at the time of this writing, there were about 10 trading days left before any losing trades left during 2023, if then repurchased in December, would qualify for wash sales. This timing window and tax treatment prevents a manager from selling an investment at a loss in December and they're repurchasing a position before the year's end. If they do, they get penalized and the realized losses are repriced upward. This creates a short-term tax incentive to sell before the end of November. It's a quirk in the markets, but very real to portfolio managers and shorter-term traders. For now, the 2023 sell-off that we forecast from July was not different this time,

Starting point is 00:05:52 and a seasonal Santa Claus rally starting late October and lasting into December and potentially extending into a very volatile manner into mid-March 2024 shouldn't be either. And for that, I am truly thankful. O'Carvis Financial Group manages broadly diversified equity portfolios that balance risk and reward for our clients. Investors, we're here to help you on your financial journey into and through your retirement years. I'm Chris Paris, and the whole team here, we hope you had a great Thanksgiving, and we're looking forward to a great December. 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 00:06:35 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 - The Road Ahead: December’s Market Forecast and Investment Strategies to Consider

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