Stock Talk - Why Aren't Stocks Lower? Stock Talk Update, Friday March 27, 2026

Starting point is 00:00:00 Okay, investors, I'm doing an episode this week. It's called Why Aren't Stocks Lower? Because many investors are asking, why aren't stocks down more this year? I mean, more in Iran, geopolitical strife in virtually every region of the world. It's a fair question. We've had geopolitical tension. We've had an energy shock type of the Iran war. We've seen volatility spike to over 30. And yet, through all of that, the SEP 500 is holding up far better than most investors expected down about minus 5% year to date and about minus 7% off all-time highs. So far, a pretty ordinary pullback after the type of run we had from last year's April 3rd and 5th bottom into Halloween of last year. So today, I want to walk you through three key

Starting point is 00:00:44 reasons why the market has been more resilient than it feels. And more importantly, what it means for investors, especially those in or near retirement. So first off, investors, energy is no longer as big a macro effect on our consumers here in the U.S. It's no longer a big macro consumer shock. I'm starting out with energy because that's the thing on your TV screens almost every day. Historically, spikes in oil and gasoline prices have been one of the fastest ways to slow down the U.S. economy and the stock market. But there's a key difference today.

Starting point is 00:01:16 Energy costs don't make up as much of a household budget as they used to. Let's look at the data. Back in the late 1970s, when I was growing up, Energy products made up over 6% of U.S. household consumption. That was a big burden on our parents. When energy prices spiked, consumers had to cut their spending elsewhere. That slowed economic growth quickly. Now, let's compare that to the last decade.

Starting point is 00:01:39 For the last decade, energy has averaged closer to 2% of household consumption here in the United States. Investors, that's a dramatic shift. Let's look at the data. Here's a chart from Barclays. What means is that energy prices rise today, the impact on the overall consumer spending is much smaller than it was in past decades. This matters because consumer spending drives close to 70% of all U.S. economic activity. And ultimately, that spending is a big driver for corporate earnings.

Starting point is 00:02:07 So yes, energy prices have moved higher and quite fast, but the economic shock so far is far more muted than it would have been 30 or 40 years ago. That's the first major reason. Stocks haven't followed as much as many investors expected. The second reason? We think that's the most important factor. earnings. At the end of the day, stocks follow profits. Right now, profit expectations are not weakening. In fact, investors, they're improving. I'm going to walk through the current outlook once again. According to recent estimates from FACCET, as well as analysis highlighted by Morgan Stanley recently,

Starting point is 00:02:39 the S&P 500 is expected to see Strong's earning growth in 2006, even with the ongoing geopolitical risks. By Strong, I mean, we're looking at mid-teens growth for second and third quarter of this year. That's the key point. Earnings growth is not just positive. It's expected to accelerate in the middle of this year. It's critical because early estimates suggest low double-digit growth in the first quarter accelerating to mid-teen's growth by the middle of the year, potentially staying elevated into the second half of 2006. That's not what you typically see in front of major market stock market declines. We've covered this before, but historically, markets tend to peak when earnings growth is slowing, not when earnings growth is accelerating. Historically, markets don't anticipate earnings

Starting point is 00:03:26 tops like they do at market bottoms. Let me say that again, because it's important. Markets rarely break down when profits are improving. They break down when profits have peaked or deteriorating. So when investors are experienced today is negative headlines, geopolitical uncertainty, and short-term volatility. But underneath the surface, corporate earnings expectations are holding up, and in many cases, moving higher. That creates a strong. fundamental floor for the market. So even when stocks pull back, buyers step in. Because from a long-term perspective, earning still support higher prices and stocks at these interest rate levels. So the third and final metric I'm looking at is monetary policy could turn more supportive. I do mean could.

Starting point is 00:04:08 That's the third factor. This one is especially important looking forward. Right now, investors are focused on inflation, interest rates, and the Federal Reserve, particularly given what Chairman Powell said about a week ago. But the potential for a new Fed Reserve Chairman Kevin Warsh doesn't seem to be priced into the market. With Warsh comes the possibility, and I do mean the possibility, of a more flexible and potentially looser monetary policy stance, one that tends to be less data-driven and one that might be more intuitive. To be clear, the Fed is still focused on inflation, which I think disregards the slowing job market. But investors, this leadership change matters. Historically, new Fed chairs often bring a shift in communication and a shift in policy priorities,

Starting point is 00:04:54 and sometimes a shift towards supporting economic growth. Markets are forward-looking. They don't wait for policy changes to happen. They begin to price in the possibility ahead of time. So even if current rates are stuck waiting today or if they are pricing out future interest rate cuts, the new chairman might bring easier financial conditions, a more flexible Fed, the potential for lower real rates over time, which of course would be supportive for equity valuations, risk assets, and overall investor sentiment first, the last month of the Federal Reserve angst. So when you combine

Starting point is 00:05:29 stable to improving earnings, reduce sensitivity to energy stocks, and the potential for a more accommodative policy later in the year from the Fed, you get a market that is more resilient than the headlines would suggest. So why aren't stocks down more this year? Those are the three factors. First, energy is a much smaller part of household spending today, so rising prices don't hit the economy quite as hard. Second, earnings growth remains strong, and it's expected to accelerate that provides fundamental support for stock prices. Third, monetary policy could, and I do mean could, become more flexible, especially with a new Fed share. And the markets are already beginning to anticipate these things. What does it mean for investors? For investors, especially retirees and those

Starting point is 00:06:12 nearing retirement, takeaway is not to ignore risks, volatility is here, and headlines will continue to drive short-term market moves. But it's important to separate short-term noise from long-term fundamentals. Right now, fundamentals remain supportive much more than most people realize. That doesn't mean markets can't go up or down day-to-day. They rarely go up in a straight line. We've covered the normal history and frequency of market declines in past videos. investors, but it does mean that periods of uncertainty, like the one we're in now, can create opportunities, not just risks. So for now, 2006 has been a sloppy, choppy mess for the S&P 500 in the first quarter. Here to date, we're navigating slower growth, higher war-driven inflation,

Starting point is 00:06:55 and higher base volatility in markets. Our advice from Oak Harvest remains consistent. Stay disciplined, stay diversified, stay focused on your long-term objectives and your financial plan. We'll continue monitoring these structural risks and positioning accordingly. Whether your priority is growth, income, or a combination of both, our team is here to help you plan for your family's financial future, no matter where 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, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change within. notice. Strategies and ideas discussed may not be right for you and nothing in this podcast should

Starting point is 00:07:44 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 and involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Why Aren't Stocks Lower? Stock Talk Update, Friday March 27, 2026

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