The Heat of Summer: Don’t Let Seasonal Shifts Derail Your Strategy

[embedyt] https://www.youtube.com/watch?v=8-RNwkiuamc[/embedyt]

The first half of the year is behind us and what 6 months it was. Post election rally, followed by a -20% bear market cyclical correction, followed by a fast and furious, historic, non-Fed induced, V-bottom in stocks.  History would say that the initial V-bottom move in stocks off the bottom that started the 2^nd week in April is now about 95% complete in price and 90% in time. However, while stocks might look over valued and as chartists call it “overbought”, history says that neither factors will tell you that the bull market for stocks that we’ve been in since October 2023 is itself “over”.  That you should dump your stocks and hunker down.

While our team does expect the usual summer slowdown and likely 3qtr pullback in stocks into late fall, history says, if this happens, it is most likely a buying opportunity for year end 2025 and forward returns in stocks in 2026.

Many in the financial press try to scare investors even when stocks are making new highs.  Investors, new highs are rarely bearish.  In fact, new highs tend to cluster and trend, so making new highs, historically, has proven good news for further positive returns over the next 9-15 months. A great chart from Ben Carlson showing the clustering of new highs in bunches.  The average year since 1990 has had 20 new ATH in a year.

In fact, more great data from Ben, the average 1, 3, and 5 year return in stocks since 1950 have been? Marginally higher not lower when investing at all time highs than other days,

The pattern for the overall market remains bullish and yes, historically July is one of the better return months for the S&P500 with earnings and buybacks around the corner. Up and to the right is good.  New ATH’s are not bearish historically.  That said expect the pace to slow.  What groups might slow?  Well technology names that have led the rally USUALLY slowed their gains late in the 3rd quarter.  I would expect the same this year with Semi’s likely stalling and maybe software and healthcare taking up the lead.

Here’s the overlay of the SOX semi index in 1998 and now.

We called for a semi rally while many others were hunkered down in April and May and called for lower stocks or risk off.  We got our rally. We don’t expect a broad semi selloff in 2q but do expect 2-4 months of sideways consolidation after 2q EPS are reported in August.  This should be the AI pause that refreshes.  We got this same dynamic playing out in 1998/99.  Maybe the next stage higher on semis requires a China/us trade agreement or maybe it’s just time to digest inventory with concerns of pull forward in buying in 2q for year end as many companies were trying to beat the new tariff regime.  I don’t know, but history says we are likely only about 1/3^rd done with an 18–24-month semi rally.  A 3-4 month stall and consolidation followed by one more big upward run in late 2025-2026.

Investors we expect a normal late summer pull back in the markets, but Investors you most likely won’t see those low levels of April again for quite some time if at all this year.  Many institutions got too bearish near the early April lows and “de-risked” and are already way behind the performance curve in the 2^nd quarter.  If this plays out as Our team has stuck with our 2025-yearend target of 6600 even as stocks sold off into April, and most strategists slashed their targets from over this number to the low 5000’s and are now raising them once again.  Can the markets pull back to 6000 later in summer?  Yes, this would be quite normal post August.

Does that mean you shouldn’t add to stocks particularly if you are younger and in saving and accumulation mode?  No, rarely can you pick the absolute level in both price and time, on both the buy side, sell side, and buy side once again, particularly in growth stocks and as we covered in prior videos. New ATHs are NOT bearish!

Bull markets in stocks are characterized by a healthy appetite for risk and broad participation. Investors this bull market isn’t just US centric like it was for nearly 10 years.  Nearly three-quarters of the countries that make up the ACWI (All country World Index) finishing June at new highs qualifies as broad participation. The ACWI is making new highs while almost 90% of the global markets in the index above their 50-day averages. The same percentage is above their 200-day average – which is a new cycle high. All very bullish, secularly.

Investors, while many who missed this rally are out justifying their absence due to the markets being “overvalued” in their fundamental work, or “over bought” in their charting work, remember that neither of these two metrics or indicators are good timing tools in a secular bull market.  Overbought can and usually does stay overbought for quarters and sometimes years, not just a couple of weeks or months, while valuations usually seem justified after stocks rally as earnings come in better than bears and pessimists had feared. A late summer pullback?  A pause? A rotation? Yes, we think som after 2^nd quarter earnings. A retreat back to April lows or worse?  Doubtful, Only if an unforecastable black swan hits, and remember investors, they call it a black swan for a reason…its unforeseen, unforecastable, not in the thoughts or minds or numbers in the economy.  It’s the “unforeseen random sht happens sometimes” trade that keeps so many academics in the markets employed charging fees for “tail risk” funds.

Regardless of a possible summer slowdown? A normal market pullback? Or even the event driven bear market that the latest Trump tariff tantrum caused, know that  regardless of the path for the economy and financial markets over the next few months, the investment team at OHFG will be here manning the ship and adjusting our models and long/short, hedged equity fund where we can.

Until next week, our thoughts and prayers go out to all the families who lost loved ones and all those affected by the horrible Hill Country floods last week.  If you are a client who has been affected, reach out to your OHFG advisor and let us know what we can do to help.  If you aren’t and were affected, our thoughts and prayers are with you and your families.

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