Summer Market Outlook & Forecast

7/25/2019 Summer Market Outlook & Forecast

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Chief Investment Strategist

Clarity Financial, LLC________________________________________

[email protected]

281-501-1791

www.realinvestmentadvice.com


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I Know, Its Very Confusing.

This Simple Chart Should Clear It Up.


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5/51

POLICIES DO MATTER

Clinton Platform

Anti-Second Amendment Government Controlled Healthcare

Expand Immigration

Raise Minimum Wage

Pro-Legalization of Marijuana

Supports Climate Change

Legalize Abortion

Pro-LGBT/Transgender Rights

Increase Taxes

Anti-Isreal

Pro-Iran

ISIS No Boots On The Ground Supports Form Of TPP

Trump Platform

Pro-Second Amendment Repeal/Replace ObamaCare

Build A Wall/Immigration Reform

U.S. China Trader Reform

Focus On Job Creation

Reform V.A.

Climate Change Is A Hoax

Limit Abortion

Same Sex Marriage State Issue

Lower Tax Rates

Pro-Isreal

Anti-Iran ISIS No Boots On The Ground

Opposes TPP


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NOT SO MUCH FOR WALLSTREET

490

495

500

505

510

515

520

525

530

535

Jan Feb Mar Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Average Pre-Election Year S&P 500 Performance

(Average Of 1960-2012)

Average Pre-Election Year S&P 500 Performance

REALINVESTMENTADVICE.COM

Average Return In Years Preceding

A Presidential Election Is: -2.7%


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640

651

663

674

685

696

708

719

730

260

265

270

275

280

285

290

295

300


SecularBullMarket

Average

SecularBearMarke

tAverage

Pre-Election Year Performance

(Secular Bull Markets vs Bear Markets)

Average Pre-Election Returns (Secular Bull Markets) Average Pre-Election Returns (Secular Bear Markets)

Bull Market Avg: 12.2%

Bear Market Avg: -6.9%


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630

643

655

668

680

693

705

718

730

290

300

310

320

330

340

350

360

370


SecularBullMarketAverage

SecularBearMarketAverage

Post-Election Year Performance

(Secular Bull Markets vs Bear Markets

Average Post-Election Returns (Secular Bull Markets)

Average Post-Election Returns (Secular Bear Markets)


Bull Market Avg: 20.3%

Bear Market Avg: 8.4%


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11/51

SoWhos Better For The StockMarket?

Truth Is: It Probably Wont Matter


12/51

What Hath The Fed Wrought Recent Statements By Fed Chair Janet Yellen & Ben Bernanke

BERNANKE SAYS WE'RE LUCKY TO HAVE YELLEN LEADING THE FED

YELLEN: AMERICA OWES BERNANKE ENORMOUS DEBT OF GRATITUDE

YELLEN: WE WANT TO DO EVERYTHING TO HEAD OFF A FINANCIAL CRISIS

YELLEN: FED'S HANDLING OF FINANCIAL CRISIS WAS MAGNIFICENT

YELLEN: QE, FORWARD GUIDANCE HAVE HELPED ECONOMY RECOVER

YELLEN: WE DIDN'T SEE HOW HOUSING BUBBLE CREATED SYSTEMIC RISK

YELLEN: WE ARE TRYING NOW TO DO BETTER JOB OF SEEING RISKS

YELLEN: WE ARE FOCUSED ON SYSTEMIC RISK, FINANCIAL STABILITY

YELLEN: ECONOMY IS CONTINUING TO IMPROVE


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600.0

700.0

800.0

900.0

1000.0

1100.0

1200.0

1300.0

1400.0

1500.0

1600.0

1700.0

1800.0

1900.0

2000.0

2100.0

2200.0

800000

1100000

1400000

1700000

2000000

2300000

2600000

2900000

3200000

3500000

3800000

4100000

4400000

4700000

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

S&P500

Fed

BalanceSheet

Fed Balance Sheet Driving Asset Prices

Fed Balance Sheet S&P 500 Stock Price Index


Market Troubles ?

Fed To The Rescue

Market Troubles ?

Fed To The Rescue

Bernanke Launches QE InAnticipation Of "Fiscal Cliff"

Market Troubles ?

Fed To The Rescue

With QE4?

"Fiscal Cliff" Impact Muted

Excess Liquidity Sends Market

Into Overdrive.


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-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

500000.0

1000000.0

1500000.0

2000000.0

2500000.0

3000000.0

3500000.0

4000000.0

4500000.0

5000000.0

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

GDPA

nnual%Chg.

FedB

alanceSheet

QE Not Translating Into Economy

Real GDP Fed Balance Sheet Quarterly 2% Growth Rate


QE 1 Worked To Provide A Push

To Economic Growth From Deeply

Depressed Levels.

QE 2, 3 & 4 Have Had A Much

Diminished Rate Of Return.


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382.36%

209.86%$1.82

Total Percentage Increase In Fed Balance Sheet

(From Low)

Total Percentage Increase In S&P 500 (From Low) $'s Of Fed Purchases To Create $1 of S&P Growth


THE QE EFFECT S&P 500


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THE QE EFFECT ECONOMIC GROWTH

382.36%

27.12%

$14.10

Total Percentage Increase In Fed Balance

Sheet (From Low)

Total Percentage Increase In GDP (From Low) $'s Of Fed Purchases To Create $1 of GDP

Growth



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THE QE EFFECT NOT IN LABOR FORCE

371.64%

16.28%

$22.83

Total Percentage Increase In Fed Balance Sheet Total Percentage Increase In "Not In Labor

Force"

$'s Of Fed Purchases To Create $1 of "Not In

Labor Force" Growth



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The Zero Bound Effect

64.0

128.0

256.0

512.0

1024.0

2048.0

4096.0

-5

0

5

10

15

20

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

FedFundsR

ate

The Federal Reserve & Financial Crisis

Recessions Real GDP (YoY % Chg.) Effective Federal Funds Rate S&P 500


Oil Crisis

Savings & Loan

Crisis

Continental Illinois

Asian Contagion/LTCM

Orange Country

CA Bankruptcy

Credit Crisis

???

"Dot.Com" Crash

Crash of '87


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Warning: Declining Profit Margins

32

64

128

256

512

1024

2048

3%

4%

5%

6%

7%

8%

9%

10%

11%

1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

S&P500(Log

Base2)

ProfitsAs%OfRealGDP

Peaks In Real Profit Margins vs. S&P 500

Recessions Real Profits As % Of Real GDP

S&P 500 Stock Price Index Expon. (Real Profits As % Of Real GDP)



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Warning: Price-To-Sales Expensive


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Warning: Economic Output Declines

0

10

20

30

40

50

60

70

-15

-10

-5

0

5

10

1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014

StreettalkE

OCI

LEI&GDP

Economic Output Composite Index

Recessions GDP (Quarterly Change at Annual Rate)

LEI - 6 Mth % Change Economic Output Composite Index



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Warning: Equity Ownership


27/51

Warning: MoMo & Yield Chase


28/51

Warning: Earnings


29/51

The Truth About Investing& Why Buy & Hold Doesnt Work.


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-6000

-4000

-2000

0

2000

4000

6000

8000

10000

32

64

128

256

512

1024

2048

4096

8192

16384

32768

65536

1965 1973 1981 1989 1997 2005 2013 2021 2029 2037 2045 2053 2061

ActualVs.Promised

Returns

Thousands

S&P500IndexActual&Projected(LogScale)

Impact Of Bear Markets Are Have Substantial Effects On Outcomes

Promised Growth Of $10000 At 7% Actual Growth Of $10000 Return Gap

Actual S&P 500 Projected S&P 500 Expon. (Projected S&P 500)


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0

5

10

15

20

25

30

35

40

45

50

-5%

0%

5%

10%

15%

20%

25%

30%

CAPE

Rolling20-Year

Returns

S&P 500 Real Rolling 20-Year Annualized Returns CAPE Valuations


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20000

40000

80000

160000

320000

640000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MISSING THE 10-Best vs 10-Worst Days

$100,000 Missing 10 Best Days $100,000 Missing 10 Worst Days $100,000 Invested In Index (Buy and Hold)


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(20)

(15)

(10)

(5)

-

5

10

15

20

25

30

32

64

128

256

512

1024

2048

4096

8192

1/1/1900

1/1/1910

1/1/1920

1/1/1930

1/1/1940

1/1/1950

1/1/1960

1/1/1970

1/1/1980

1/1/1990

1/1/2000

1/1/2010

CAPERatio,Inflation

InflationAdjustedReturnO

f$100

The Real Value Of CashMonthly Compound Real Return Of $100Valuation Adjusted Return Of $100 (23x = Cash, 6x = Stocks)

P/E Capped At 25xAnnual Change In Inflation


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Asset Selection Styles Rotate With Market Cycles

Economy Market

Full Recession

Early Recovery

Full Recovery

FinanceTechnology

Cyclicals

Market Bottom

Bull Market

Market Top

Bear Market

TechnologyIndustrials

Basic Materials

Basic MaterialsEnergy

Staples

EnergyStaples

Healthcare

HealthcareUtilities

Finance

Late Bear Market

Early Recession

Deep Value/Safety

Value / Growth

Momentum

Value/Income

Contrarian Value

Deep Value/Safety


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0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Technology Cylicals Industrials Materials Energy Staples Healthcare Utilities Finance S&P 500 Bonds (7-10

Year)

60/40

Portfolio

Sector vs. Portfolio Performance 2016 YTD

Technology Cylicals Industrials Materials Energy Staples

Healthcare Utilities Finance S&P 500 Bonds (7-10 Year) 60/40 Portfolio

SELECTED BLUE CHIPS


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Cash , 5.00%

Bonds, 35.00%

Dividends, 20.00%

Staples, 10.00%

Healthcare, 10.00%

Utilities, 10.00%

Selected Blue Chips,

10.00%

Other, 60.00%

Portfolio Allocation For Late Economic Cycle


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0%

25%

50%

75%

100%

500.0

1000.0

1500.0

2000.0

2500.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

X-FactorAllocationW

eighting

S&P500

401k Plan Manager - Risk Management Analysis

X-Factor Allocation Weighting S&P 500 Index Short-Term Simple MA Long-Term Simple MA



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$102,946.73

$102,172.89

$102,564.24

94000

95000

96000

97000

98000

99000

100000

101000

102000

103000

104000

Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

60/40 Benchmark vs. Risk Adjusted 60/40 Allocation$60k Invested In VFINX (stocks) & $40k in VBTIX (bonds) - Capital Appreciation Only

60/40 Model Risk Adjusted 60/40 Allocation Model Performance S&P Index


41/51

50000

75000

100000

125000

150000

175000

200000

225000

250000

275000

300000

325000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

60/40 Benchmark vs. Risk Adjusted 60/40 Allocation$60k Invested In VFINX (stocks) & $40k in VBTIX (bonds) - Capital Appreciation Only

60/40 Model Risk Adjusted 60/40 Allocation Model Performance


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OIL, GOLD & INTEREST RATES


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10000

12000

14000

16000

18000

20000

22000

4000

5000

6000

7000

8000

9000

10000

1980 1985 1990 1995 2000 2005 2010 2015

Supply

Deman

d

The Supply-Demand Relationship

U.S. Field Production of Crude Oil (Thousand Barrels per Day) 12-Mth Avg Consumption


source: EIA

With Oil Now Over Supplied, The Catalysts For Rally

Are Missing. Major Supply Reversion Must Occur.

As Demand Hits Peaks,

Low Supplies Leads To

"Peak Oil" Fears Providing

Basis For Oil Price Spikes


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0

20

40

60

80

100

120

140

160

4000

5000

6000

7000

8000

9000

10000

1980 1985 1990 1995 2000 2005 2010 2015

OilPrice

Supply

The Supply-Price Imbalance

U.S. Field Production of Crude Oil (Thousand Barrels per Day) OIL PRICE / BBL


source: EIA

Oil PriceSurge

The Last Time Oil Supplies Were At This Level


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1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014

MonetaryVe

locity

InterestRates,GD

P,Inflation

Interest Rates A Function Of Economic Growth, M2 Velocity & Inflation

Gross Domestic Product Inflation (CPI) 10-Yr Treasury Rate Velocity of M2 Money Stock



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T S h d l A A i t t F A


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Intro By: Lance Roberts

Editor For Real Investment Advice


Clarity Financial, LLC.

[email protected]

Tel: 281-501-1791

Richard Rosso, CFP, CIMA

Contributing Editor For RIA &

Head Of Financial Planning

Clarity Financial, LLC.

[email protected]

To Schedule An Appointment For A

Personal Review Of Your Assumptions

& Plan

GO TO: www.realinvestmentadvice.com

Schedule An Appt. Button.


51/51

Q&ALance Roberts


Clarity Financial, LLC________________________________________

[email protected]

281-501-1791

www.realinvestmentadvice.com

Summer Market Outlook & Forecast

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