Stock Talk - Was the recent early May Stock Rally predetermined?

Starting point is 00:00:00 Investors in last week's release titled Return to the Old Normal, back to a regularly scheduled program, how the rest of 2024 might play out for the S&P 500, we covered a lot of ground. The equity markets had already been in rally mode for about a week into what turned out to be a bad news, as good news, lower than expected BLS jobs release Friday, which was reported at 175,000 jobs, almost 20% lower than economist's expectations. Into that number, the S&P 500 had already rallied about 2% or 100 cash S&P 500 points off its closing, option expiration Friday, April 19th, closing low, a 4967. With that bad news is good news attitude, the attitude that the Federal Reserve might cut interest rates sooner rather than later, shorter-term traders had to reverse course,

Starting point is 00:00:49 cover shorts, or buy stockbacks. Longer dated, interstate yields fell sharply, setting off what investors should come to expect. Rather, a broad overall market rally, led by Yep, you guessed it. The old normal large-cap tech stocks, semiconductor stocks, and some industrial names. NASDAQ composite led the rally up almost 2% on the day. The SMH ETF, that's the semiconductor ETF, was up 2.7% and almost everything, techie, jumped between 2% and 8% on the day. It certainly didn't hurt that Apple announced a positive earnings and revenue quarter versus low expectations due to China exposure, and they also announced 100% $10 billion stockback and teased their entrance into and development of future releases of

Starting point is 00:01:36 AI-enabled phone later this year or early 2025. But frequent listeners who know me well know that are like real-time tradable data that leads markets. And I often say that news headlines or government economic data is most often an excuse, or at least a reason given for a move that was highly likely to occur anyway if one looks behind the scenes. Recall just three weeks ago on Friday, April. April 26th, at the near height of the inflation won't drop, and the Federal Reserve might have

Starting point is 00:02:05 to raise rates hysteria on financial news networks, our investment team posted our weekly stock talk video titled, The Good, the Bad, and the Ugly. I drop a link to this video in the description below. In that video, our team called out the good our team was seeing was the real-time data was saying inflation expectations were peaking right then, right then when others were becoming most alarmist. Just three weeks ago, the doomsayers were getting most vocal about inflation re-accelerating return. Investors, our scripts are written over the weekend.

Starting point is 00:02:38 It takes almost a week for our script to get posted to the internet here on YouTube. That's the one that was penned on Sunday, April 21st. Looking back, that was the weekend, the S&P 500 bottomed short term. Investors, that video was taped on Monday morning, April 22nd, and released on Friday, April 26th. Take a look at the updated chart of five-year real-time inflation expectations. Recall, we had no idea the excuse that might have for a rally, but this real-time data series said one was coming in advance of the current rally in equities. We noted the similarities to inflation expectations late October of 2003,

Starting point is 00:03:15 peaking four to five days before the stock market troughed. Back then, the S&P 500 promptly rallied back to its then all-time high of 4,800 and only six weeks. It then went on to go on a 1,100-point rally from the October 2003 low to the March 24 high in exactly five months. Viewers, I want to give a shout out to the entire Oak Harvest team. As a few weeks ago, the USA Today ranked us as one of the best financial advisory firms for 2024. The award is given to the top registered investment advisory firms in the United States based on two key criteria. First, the recommendations from individuals among 25. thousand financial advisors, clients, and industry experts. And two, growth in assets under management

Starting point is 00:04:01 over the last 12 months and five years, respectively. The five-year real-time inflation break-even rates. That was the good news back in late April. We gave you the bad news back then as well. And most likely the reason for the broad market sell-off the first three weeks of April. What was the bad news back then? It was the pivot higher, not lower, and five-year real interest rates. Remember investors, this is the interest rate that comes closest to accurately forecasting when their investors are willing to pay higher P.E. multiples for the market or lower P.E. multiples. Higher real interest rates historically compressed P.E. multiples, while lower trending real rates historically lead to higher P.E.s and higher stock markets over the past 15 years.

Starting point is 00:04:44 Well, early the week of May 1st, a few days in front of the week Friday's jobs data, our investment team published this updated chart of the real-time, real interest. rates on LinkedIn. Take a look at the chart we posted with annotations on it. Investors, this was before the jobs data was released, and many strategists and TV personalities were nearing hysterical levels, saying the Fed wasn't going to cut rates in all of 2024, which of course would likely be bad for equities. Why? Because the second half of 2024 looks like there'll be lower earnings than expected, given the economy is slowing, and most of the economic data series are coming in light versus expectations.

Starting point is 00:05:21 Here's that same chart of real interest rates three days after the jobs data, after the S&P 500 had gained another 1.5%. The growth-heavy NASDAQ rallied 2% on that Friday. Did our team know what the data would be and it would be weaker than expected? No, of course we didn't. Did we survey every state and try to triangulate job creation? Nah, we didn't do that either. There's only five of us here on the investment team.

Starting point is 00:05:47 We were just looking behind the scenes at real-time tradable data that has been pretty good historically at helping one catch turns or rotate a little more in or out of certain industries and sectors. Why do I say that? Because as soon as the job data hit, you could see the computers take over in buying certain ETFs or stocks with characteristics and selling others. Investors, for example, utilities had been the best performing group in the market and in April, along with energy stocks and staple names like Pepsi or Walmart. However, post the jobs data, the energy group was the worst performing group in the S&P 500, and the utility group was only marginally green, even with a big rally in interest rates, which should be a queue to go buy boring and stable companies like utilities and staples. However, computers don't do that.

Starting point is 00:06:35 They go buy gross stocks. Over the long term, yes, they work during lower interest rate times. However, when real rates fall, equity risk premium falls, and the quantitative-driven investor kicks in usually buying the highest growth, most volatile stocks, as they benefit at the margin more from a slower growth economy than more boring dividend growth names. Okay, investors, so where do we go from here? Well, we laid that out in our piece last week. That is in the link in the description below. And investors, I do want to directly apologize to Jerome Powell for one of my last week's comments where I sarcastically mentioned the Fed's

Starting point is 00:07:12 collective wisdom. Whether the whole Fed is smart or not, given Jerome Powell's prepared speech and press conference answers after the release of the Fed's decision earlier in the week, I was beyond pleasantly surprised that it does appear that Jerome Powell, if not anyone else at the Fed, is looking behind the scenes and beyond the stale and inaccurate government economic data series. And he's keeping an eye on and taking into consideration real-time market and real-time economic data. Maybe he is watching the city economic surprise index go straight down the last four weeks as the economic data has consistently underwhelmed the collective estimates of economists and strategists making those predictions. Who knows? We have to wait

Starting point is 00:07:53 to see what they do the next couple months. But for investors and retirees uncomfortable with the wider range of possible equity outcomes, the old Carver's team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorbers for stock portfolios. Information on this exciting new strategy of ours can be out at oak harvestsfunds.com. From the whole team here at oak harvest, have a blessed weekend. And for you mothers out there, have a great mother's day. 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,

Starting point is 00:08:33 indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas. 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 - Was the recent early May Stock Rally predetermined?

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