Stock Talk - Why I Don’t Buy Latest Bearish Sentiment on S&P 500

Starting point is 00:00:00 Last week's video, two things that really matter revisited must have struck a chord with many investors. Why do I say that? Because based on that video, I got a few inquiries about whether our first half outlook, which was S&P 500 forecast at 5,000, was still what we were looking for. They took my tone and content as negative versus short-term cautionary. This week's video, S&P 500, 5,000? Why so bearish? The Old Carvis investment team likes to look behind the scenes at some more institutional type of data and financial instruments and trading series that many other financial advisors don't. With most of our team coming from larger institutional backgrounds, many of these factors

Starting point is 00:00:38 lead the markets and can be somewhat predictive of future moves more than most time series that are talked about on TV. But remember, investors, nothing is ever 100% accurate and precise. There is no perfect in investing, which is why one of the cardinal sins that most strategists we'll try to avoid, is forecasting both time and price together. Last week, we re-addressed our thoughts on real-time inflation, which is once again rising, regardless of what last week's investor inflation sentiment survey said. Take a look at the updated chart of the two-year real-time inflation.

Starting point is 00:01:14 The cautious tone, and that's all it was, was tone I had during last week's video, arises from the fact that inflation is seasonal and looks set to rise through the rest of January into February on the back of many of the exact same reasons that goods inflation rose 18 months ago. Secondly, the level and trend in real interest rate component within nominal yields. This is also called the tips interest rate. This is one that many strategists

Starting point is 00:01:41 finally discovered and started discussing as critical, almost universally in a negative manner, right at the market's lows in late October of last year, right in front of the rip-roaring late fourth quarter 2003 rallies. Remember all those CNBC and Bloomberg interviews with strategists spouting the Fed's higher for longer message or discussing some academic nonsense of R-Star right at the market lows in stocks and yield highs and bonds?

Starting point is 00:02:07 Unlike many other shops, we've spoken about real-time interest rates and real-time inflation a lot over the last two years. We will cover them again here. Real-time inflation and real-time interest rates. And the unfortunately opposite of January 20th, 2003, they are currently saying to, seasonally curb your enthusiasm a little bit here, that a pullback is likely, it's going to be fast and furious, and it's probably forthcoming in February. Investors, higher inflation, whether seasonal or not, is bad for consumer sentiment. Take a look at the chart of the real-time, two-year break-even inflation rates. These are real-time. This isn't government data that takes

Starting point is 00:02:46 months to compile and to disseminate and has revised many times later on. Investors recall that the two decent pullbacks in 2023 came as inflation expectations were rising and no longer falling. Those two time periods were in February and then again late summer, August through October. One can clearly see that historically, a lower trending level from a high level of inflation is good, a moderate and stable level of inflation is okay, a low level is okay, but a higher trending reading is eventually a headwind to the markets. The second thing that we discussed last week was real interest rates. The real interest rate yield component of Treasury goes a long way to determine the risk premium in PE multiples investors pay for equities. Take a look at the chart of the two-year

Starting point is 00:03:30 real interest rate. The old harvest investment team's bullish call for a strong S&P 500 rally into year end, 2013, back towards all-time highs, was mainly due to us seeing a top and trend change in this key PE price-to-earnings multiple factor. It peaked as virtually every strategist on TV was parroting the Fed's phrase higher for longer and taking academic nonsense talk around theoretical R-star levels. This one piece of data that's almost entirely behind the scenes for the November and December stock market rallies around the world, and more importantly, behind last week's rallying growth and technology stocks in the NASDAQ 100 here in the United States. But Chris, weren't you more optimistic about the markets this year?

Starting point is 00:04:14 I've been asked as the markets have probed new all-time highs. I admittedly have to hold my tongue when I'm asked this. Why? Because by no means am I bearish about the markets in the first half of 2024. How could I be? I'm one of the few CIOs and analysts out there who have been talking for over a year now that while markets have been mirroring the internet bubble from October 1998 through 2000, we still had room to run on the upside for the first half of 2004. My view hasn't changed at all. Take a look at the overlay of the S&P 500, then during the dot-com bubble, and now.

Starting point is 00:04:47 for what it's worth, our 5,000 objective on the S&P 500 actually understates a little bit the prior scenario. The bubble would take things to around 5125 short term in the first half. However, remember investors that 5,000 is about a 4 and a quarter percent gain over six months, and 5125 would take us up about 6 percent. At 4,100 in late October, 2023, when our team had our live stream, projecting S&P 500,000 for the late first quarter of 2024 was almost a 22% gain in eight months. That's a bullish call. The S&P 500, having done what we thought it would, is hard to be a raging bowl in percentage terms.

Starting point is 00:05:30 As for two other dot-com period overlays, here's one of the Philadelphia Sox Semiconductor Index then and now, and a second overlay of the NASDAQ index, which largely contains most of the magnificent seven. And finally, just for giggles, or maybe to scare some of those who remain steadfast, bearish or short, I ask, which large-cap technology stock came public in early 1999 near the beginning of the dot-com bubble? Anything? Anything? If you guessed, Nvidia, you'd be correct. Take a look at the overlay of Nvidia, now, and then. So to answer my viewer's question, Chris, why are you so bearish? Once again? I'm not yet. But having done this for over 30 years,

Starting point is 00:06:11 I know what the data says, and even during the internet bubble, stocks didn't go up every day. day in a straight line. In fact, during the month of February in 2000, it was quite a wild ride for tech stocks. And those investors who refrain from chasing stocks into option expiration Friday, January 21st, 2000, and waited a few weeks or happily rewarded with a better buying opportunity on most of these leading names in the markets. Remember, the title of our first half-2020 for Outlook was more of the old normal, searching for Goldilocks, volatility, and presidential cycles. Thank you for taking your time to watch and have a blessed week in a fantastic new year. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for

Starting point is 00:06:57 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 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 clients. portfolios. Investing involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Why I Don’t Buy Latest Bearish Sentiment on S&P 500

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