Stock Talk - Will 2024 Echo 2016? What a Trump Win Could Mean for the Stock Market & Economy

Episode Date: November 1, 2024

Without endorsing any candidate.. I reflect on how past events, like the 2016 election, might mirror today's financial climate. I dive into recent trends, from inflation concerns and the “Trump trade” effects to the volatility patterns we've seen in the markets around past elections. We also examine data on key issues impacting voters, such as the economy and immigration, and how these may influence investment strategies and market performance depending on the election outcome. Plus, I provide some historical context on market returns during different administrations. If you’re looking for a perspective on market resilience and potential scenarios for 2025, this video is for you.   #presidentialelection #stockmarket #trumptrade   About Chris Perras, CFA®, CLU®, ChFC®, Chief Investment Officer: As CIO, Chris is the lead investment strategist and director of research at Oak Harvest Financial Group. Chris develops the firm's core market outlook, putting his decades of experience and expertise to work for our clients. He hosts Oak Harvest's podcast, "Stock Talk," available on the website with new episodes each week. He completed his undergraduate studies at Georgia Tech, and went on to obtain an MBA from the Harvard Business School. Driven by a desire to maximize his knowledge and skill set, he acquired financial planning and investment management qualifications, becoming a Chartered Life Underwriter (CLU®), a Chartered Financial Consultant (ChFC®), and a Chartered Financial Analyst (CFA®).   Stock Talk is a weekly vlog/podcast dedicated to discussing the Oak Harvest Financial Group Investment Team's perspective on what's happening in the market. Hosted by Chief Investment Officer Chris Perras, each episode brings you our views on stocks, the market, and the economy — with a little education thrown in for good measure. Listen each week and help stay connected to your money!   Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 or fill out this form for a free consultation: https://click2retire.com/Connect   Important disclosures: Content of Oak Harvest podcasts expresses the views of the speaker and is for informational purposes only. Oak Harvest believes that any data, articles, or information cited are reliable at the time of creation, but does not warrant any information contained herein to be correct, complete, accurate, or timely. References to third-party analysts should not be seen as an endorsement of their views or recommendations, and you should do your own research before investing. 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 constitutes 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. Any 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.

Okay, first off, investors, this is 100% a thought piece and not an opinion piece. And for full disclosure, I've personally met Donald Trump on at least three occasions over my business career as part of investment teams. In business settings, when he and his companies were looking for financing and we chose not to do business with his companies. I have not chosen to do business with Donald Trump in the past. That said, why am I doing this a few days before the presidential election? Because I wanted to think out loud. I've been having another case of deja vu over the last two weeks, both in the mainstream media outlets, as well as in the financial markets. Investors, I keep hearing replays from the media, from entertainers, from actors and financial outlets of the late 80s REM song, It's the End of the World.

I repeat, this is meant as a thought piece for you and your money, regardless of who you vote for next week or who wins. Neither Ocarb's Financial Group nor I am endorsing each other. candidate for next week. There has been a near constant chorus over the financial news networks over the last two to three weeks about the ongoing moves in the markets, both stocks and bonds being part of the Trump trade. That's the financial markets moving based on Donald Trump winning the presidency as he did in 2016 as a long shot against Hillary Clinton. Folks, up until two weeks ago, I thought he had very, very long odds to win. That is until I saw this table compiled by a number of polling sources. Investors, take a look at this table.

It breaks down the seven states that are thought to be swing states. Those are close races between the current vice president and the former president that ultimately will tilt the electoral vote and the presidential outcome. What shocked me most of all was the six major issues, the economy, immigration, abortion, democracy, health care, and senior services. Over 50 to 53 percent of voters in these states ranked the economy and immigration as the two most important issues. In both of those areas, the former president has a large polling advantage. Not surprising to me was that the vice president had a commanding advantage with those who ranked social issue higher and social service spending as well. I guess this chart really shouldn't have surprised me as much as it did, because I do believe in what James Carbell said in 1992 under President Clinton, it's the economy stupid. Well, the politicians say one thing and it didn't do another.

And the 92 campaign, as I recall, was pretty specific. It was called putting people first. I think there was a sign that said, it's the economy stupid. And while the U.S. economy is growing at a nice, steady pace, the last three-plus years did usher an economic forefront of a period of 18-month rapid inflation peaking at over 9% only two years ago. That coupled with what we've discussed numerous times over the last year is a labor market

that is nowhere near as strong as the current administration is touting based on the record number of workers working second and third jobs to meet expenses. The vice president is behind the eight ball on this one, the economy. So since this is a thought piece and my job is managing money, not debating political outcomes, I'm going to jump to what might happen if Donald Trump is reelected next week. The signs I'm seeing the financial tea leaves are surprising to even myself. First off, on the economy, there's fearmongering going on that inflation will spike massively due to the Donald Trump agenda, an agenda that would supposedly bring on higher deficits than the vice president's

current agenda. Investors, this is highly doubtful. As we discussed for over six years at O'Carvis, both parties, Republican and Democrats, have been equally as horrific at overspending since the Bush administration took office in 2000. These candidates are both politicians now, and if we've learned anything about politicians in the last 40 years, it's they will spend money, money we don't have as a country, and all we're doing is arguing over where they spend it by way of tax cuts that inflate the deficit, or do they spend it on unquantifiable return on investment capital, government projects, or expanded social welfare and entitlement programs that never get cut back? Would you be shocked to hear the yields leading up to the November 2016 election rose by the near exact same amount off the summer lows as they have this year in 2024? What was that? About 42 basis points. Is anyone in the world ex a leverage quant trader in a hedge fund changing their investment outlook based on 42 basis points of higher yield? No, I don't think so. After Trump was elected in

2016, yes, yields went higher in the fourth quarter. They usually do as our economy is very seasonal. Even with a nod to massive looming tax cuts, interest rates only rose by 60 basis points. That's all. In a span of six months, yields rose 100 basis points. It wasn't the end of the world. or the financial markets, take a look at the chart of the 10-year yield then and now. The rise in yields in 2021 through 2022 was due to the massive government-induced COVID-response money supply explosion. Looking back to 2016, post-Trump winning the election, what happened to inflation? Yes, it rose modestly, just as it started to do again right now. Did it lead to financial collapse in 2017? No. One of the challenging aspects of a Trump presidency was the

final two years. The short-term volatility he induced by his afternoon tweets, usually on Thursday after European markets were closed, and the only open markets in the world were ours here in the United States. The funny thing is, I went back and studied both actual and realized volatility leading up to the 2016 election and implied forward volatility markets as well. And I compared them to right now, 2024. And guess what I found? Yes, investors, they are nearly ideal. identical almost to the day. My brain remembers massive volatility into the election in 2016 in the night of the election. But remember investors, the overnight futures market are the wild west of investing. No guardrails for options trading in the overnight. So I went back and I looked

at the real data and guess what I found? I found the actual cash S&P 500 index was down about minus 4% during the two weeks preceding the election. That's nothing abnormal about any kind of pullback at this time of the year. But Chris, volatility was massive. Nope. I checked. Spot volatility, VIX peaked at about 21 and a half the day after the election back then. And Ford volatility for December actually closed at under 15 the day after the election. Over the next six months, post-election, the S&P 500 returned 15% in volatility collapse and investors moved forward and focusing on earnings, the economy, and what was growing for the first half at 2017. Inflation was moderate. Tariff rhetoric, yes, ramped up, but so too the talk of lowering taxes

that benefited forward earnings. Back then, even the increasingly belligerent talk against China, Chinese equities were one of the best performing groups. In 2017, off the press valuation levels, kind of like they are now. Investors, I don't know who'll win the election next week. When I step back and rationally think about a second term for Donald Trump and what it might mean for investors, the phrase, it's different this time, is one, I have a hard time backing. Why? Because like it or not, it's many of the same people managing the same money and doing the same things over and over again in the markets. So many times we get the same outcome in the financial markets because humans are creatures of habit, both good and bad, but the biggest financial surprise I could think of for

2025 would be a post-2016 repeat of 2017 and realized volatility collapsing. not spiking over the next year. That would take spot volatility back below 10 during the second half of 2025, when historically, this math calculation stops around 12. Investors, the math for S&P 500 with a sub 10 VIX in the second half of 2025 would be in S&P 500 near 7,000. Am I predicting that here now? No, I'm just thinking out loud. I'm bouncing ideas around.

But I will say this is much of the same methodology that got me to near 5,8,000. for year-end 2024 and an optimistic outlook in 6,000 in January, 2025, way back in late October of last year. When others were screaming 1987 crashes were worse yet, Elliot Wave's splatterpaint charting, generational top is coming below 416 line in the sand, time to manage risk almost 40% lower from our current levels. Investors, it's been a secular bull market since around 2011 and a cyclical bull market since October, 2022 pivot higher after the first half was over of the 2022 bear market.

And investors, it's still a bull market until it proves itself it isn't, regardless of who wins next week. Whether you like their fiscal or social policies, whether or not you voted for him or her. So investors, if you start hearing them playing that REM song hit again, it's the end of the world as we know it, remember what the tagline was at the end of it. It was, and I feel fine. And investors, with that and not knowing who's going to win next week, I leave you with a little bit of data on past historic elections for returns under the GOP and DNC presidents when they won the election and swept Congress and when they didn't since the year 1900. Regardless of the outcome, historically, the outcomes were more favorable than not because at the end of the day, your investment dollars,

like the quote of James Carbell from 1992, it's the economy, stupid. Until next week, when we, Hopefully we'll have an undisputed president-elect. God bless you and your family, and God bless America. If you're uncomfortable with a wider range of possible equity outcomes, the Ocarbiz 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 your stock portfolio. You can go to Ocarbustfunds.com and find information on this new strategy of ours. For myself and from Eric behind the camera, have a great weekend, and let's have a blessed election next week.

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 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.