JD Durkin: Phil Rosen, good friend of ours, good friend of mine, a man of many titles, including now chief market strategist at Silvia. Did I get that right?
Phil Rosen: Yes, you did.
JD Durkin: Congratulations. I’m always grateful for your time here. So I was away on vacation for a couple of days. The bull market anniversary was just a day or two ago. It is now four years old. How does that stack up versus what we’ve seen from past bull markets? How are you thinking about this anniversary?
Phil Rosen: If you had bought into the S&P 500 in October 2022, at the bottom of the bear market, you would be up 120% now. You didn’t have to pick stocks. You didn’t have to buy Nvidia. You didn’t have to play the AI trade. You could have just bought the index, and you’re up 120%, just because we’re in a very strong bull run right now. And I believe, if my math is correct, this is the third-strongest bull rally at the four-year mark dating back to 1980. So pretty good. And you don’t have to be too clever about it.
I think a lot of people think about the stock market and they get real intimidated. They think it’s some fancy finance thing. But if you just buy the index, buy the market, and essentially let asset prices go up and to the right, as they typically do, and as they especially do in a generational tech boom, you’re going to do [unclear]. It’s all time in the markets, not timing the market.
JD Durkin: Time in the market. I want to get your take on what the Stock Trader’s Almanac tells us about Q4 of a midterm cycle, setting up the so-called sweet spot for equities. As of yesterday, three weeks out from the midterm elections, what does history tell us? What are you looking forward to as the rest of the year unfolds?
Phil Rosen: So I believe, again, if my math is correct, the fourth quarter of a midterm year does double the performance of a typical fourth quarter in the three other years of the four-year cycle. That’s pretty bullish. But if you go to a post-midterm year, I believe the annual return averaged 17% dating back the last five decades. So that is almost double the typical non-post-midterm year. Those are two bullish tailwinds that I’m looking at, and they’re all tied to the midterms.
And it actually doesn’t really matter who takes the House, who’s in the White House. All these things, the political side, yes, sure, there are repercussions. But from the investor perspective, if you’re buying into the market in the fourth quarter of a midterm election year, you’re going to do very well, because next year is set up to be the best of the four-year cycle.
JD Durkin: Do you see the fact that stocks have done so well, so outpacing historical norms in a midterm election year, as a sign of strength or a little bit of a reason for caution? Phil Rosen.
Phil Rosen: You know me, JD. I’m an optimist. I think things are going in the right direction. They’re certainly trending well into the strongest point of this year and the strongest point next year for the four-year cycle. I think you could be cautious. If you look at the market, it’s up 12, 13% already this year. At the typical time of year for a midterm, we’re usually flat right now in October. So some people will look at that and say, wow, we’re already up double digits compared to history in a midterm year. You could take that.
But also, I think you have to put it into context of the AI boom. These AI companies are generating more cash than we’ve ever seen. I believe tech accounts for 11 points of the 12 or 13 points of the S&P 500 this year. So considering that, I’m not too worried about whether the midterm seasonality will pay off or not. I think things are looking pretty good right now.
JD Durkin: A hotter-than-expected CPI print, at least on the headline side, earlier today maybe helps explain the way that stocks performed today. I took a look at the CME Group FedWatch tool. It says we’re expecting a hold for October. We’ll get that decision just a couple of weeks from today, I believe, I think two weeks out. But December interest rate hikes still on the table. Is that a threat to the ongoing momentum we’ve seen, or at this point, are we kind of expecting that that will be how it all unfolds?
Phil Rosen: You know, there’s a lot of economists that will take what you’re saying and they’ll say, look, we need to worry about interest rates, the Fed, Fed policy, the Fed’s new committees. I’m going to be way more simple-minded about this. I’m not an economist. I’m not that clever. I think AI is the driving force of this market. I think the macro story can almost be boiled down to, what is the CapEx story in the AI boom?
To me, that makes way more of an impact. When you consider $5 trillion of spend over five years, that’s going to have a way bigger move than a quarter-point move in interest rates. The Fed is going to do what they can, but really, they’re not going to be able to counter $5 trillion in five years. Everything is AI at this point. AI is the macro, and that’s what I’m paying attention to.
JD Durkin: I disagree only on the point that you’re not more clever than economists. You’re far more clever than most economists that I know. I’m not going to name them, but you’re truly one of my favorites, the great Phil Rosen.
Phil Rosen: Thank you, brother.
JD Durkin: Take care. We’ll see you soon.
