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Market strategist on the election’s impact on stocks

LPL Financial’s senior market strategist Ryan Derrick joins The Final Round to discuss what he expects for the second half of the year, including investor concerns about a Democratic sweep.

Video Transcript

MYLES UDLAND: We're joined now by Ryan Detrick. He's the senior market strategist over at LPL Financial. So Ryan, let's start with something that we've touched on here in the show over the last week or so, and now it is indeed August 3rd. And that's the negative impact of the, I guess, the negative way the market has traded in the month of August over the last couple of decades. What is your data saying about negative seasonality as we head into August, and also head towards the end of the year? I mean, sell in May and go away. We're technically, I guess, in the go away part of the year.

RYAN DETRICK: [CHUCKLES] Hadn't happened, yet, has it with a four month win streak on the S&P? But, you know, just real quickly on Pinterest. I was actually on the floor of the NYSE for their IPO-- I guess it was April of last year-- and that was really cool, you know? That was one of the big IPOs of the year, and it's kind of neat to be on the floor with something like that. Everyone was really pumped up and excited, so kind of a useless little trivia stat there, but I saw the IPO for Pinterest.

But you turn to August, yes. You know, you look since 1950, Myles, August and September are the two worst months of the year. The last 10 years, August is, again, the worst month of the year. Now this, you know, history doesn't repeat, but it rhymes, Mark Twain told us. But you look back at July, the last 10 years, July has been, like, the strongest month of the year.

Just gained 5%. So one further stat on this yes, seasonality is a troublesome sign when you have a big July like we clearly just did, only three times, going back to the last 30 years, did the S&P 500 gained 5% or more during the month of July. Again, it just happened. Look at those three previous times, twice, August was down 5% or so. So lots of different numbers there, but the reality of the fact is for whatever reason August can be troublesome.

So after this big rally, let's be open to the potential for a little bit of a downside move. Perfectly normal after a 45% rally.

MYLES UDLAND: Well, and--and that, I guess, that bullish-- if you look at the history and think about going back in time a month, think about what the second quarter that rally told us about quarters going forward. I mean, I know that I joke about it on Twitter in a pithy way. Like, stocks usually go up but, all of that kind of data about monthly performance, quarterly performance since the bottom, is it fair to say that history is very much on the bull's side at this point in the proceedings?

RYAN DETRICK: I think so. You know, I come on with you guys saying this. I think I might have had this last time, right? Last quarter, second quarter S&P gains 20%. You look at all the previous times it's gained at least 15% in a quarter, only eight times since World War II, that next quarter was higher eight out of eight times.

I mean, you know, it's kind of the object in motion stays in motion unless something kind of derails it. The reality of the fact is until-- if and until something derails it, clearly this upward momentum is strong, but, I mean, that rubber band is stretched awfully far. You guys were talking about tech and some of the amazing moves. Look at just today what's going on, right? Home builders, technology, healthcare. It's kind of like a broken record for what we've seen this year.

That leadership. But it still makes sense to us that's where the strength is, and on any pullback those are the areas you want to get into. But maybe, it's time for a little rotation and a little bit tech coming back to earth, I guess, we'll say here in the troublesome month of August, kind of, how we think it could play out.

DAN ROBERTS: Ryan, Dan Roberts here. Let-- let's stick with tech and the [INAUDIBLE] names, because last week, to me, was such a almost hilarious example--

RYAN DETRICK: It was.

DAN ROBERTS: --of how those big four companies are just chugging along. Forget the pandemic, forget all the talk of antitrust. I mean, you have the hearings in D.C. and the very next day they all knock it out of the park with their earnings. I think three of the four names hit 52 week highs. I think a lot of people out there are wondering if it isn't too late to get into some of these names even as high as they've gotten, say Amazon and Apple, if there's really room to run. But it sounds like you think that maybe this-- this scheme will slow down soon enough for those names.

RYAN DETRICK: Yeah, well, I was supposed to be on with the guys last Wednesday and Bezos actually bumped me because he was getting grilled there, so I'm a little upset with Amazon right now. But I can't talk about individual equities. What I will say, some of these big names that have had these huge rallies, it does make sense. Let the pitch come to us. Let them come back to us.

Let technology, in general, come back. You know, we still like the communications area. We still like technology, in general, here, and we still like health care. [CHUCKLES] Those are the ones we've brought to the dance. It just might make sense for it to come back, but it was amazing.

You know, they're all on TV getting grilled, and then they come out with these amazing earnings and all these stocks just soar on Friday. And it-- it's kind of comical, in a weird, twisted way, kind of, the reaction to the way Congress was treating them, and they were getting grilled and then they come out with just unbelievable earnings. But that's the thing, right? That's why. These are companies that can succeed in the environment that we're in, and in a-- in a unique way we almost want to see more companies do better, obviously.

And maybe that means the economy's coming back better, and everyone just isn't focusing on these couple big names that they're doing really well in this current environment. We're not there, yet, though. That's the truth.

- Hey, Ryan. When you talk about the time right now, obviously, it's a very uncertain time. Investors are looking for opportunity, but when you talk about some of the big events that are going on right now, specifically the negotiations out of D.C., just how critical do you think the stimulus is to the market and maintaining that momentum that we've seen?

RYAN DETRICK: Yeah. We think it is quite important here. I mean, a lot of the real time economic data-- people going through TSA to travel, using OpenTable, you know, use electricity, those things have flat lined here on seven day moving averages. And we've seen the cases that are still, I guess, kind of rolling over, but COVID 19 is still clearly there. So we absolutely need this.

I mean, what did Jerome Powell say last week, right? We did all we did. Ball's in your court, Congress. I mean, that's kind of the summary what he said. There's more to come potentially, if you need it, but it really is important from that point of view to keep that up.

Keep the fiscal side of things to see some more fiscal stimulus. So we think it's going to happen. This is kind of the drama that is Washington. We kind of forget, but it's what we've seen before. Both sides say, oh, we're so far apart, and then you get, kind of, to the 11th hour and then there is a deal where both sides come in.

We think about a 1 and 1/2 trillion dollar plan is quite likely when this is all said and done.

MYLES UDLAND: And then, Ryan, just quickly before we let you go, I know we'll talk to you before the election, but you just had some data out today on--

RYAN DETRICK: Yeah.

MYLES UDLAND: --how markets tend to act ahead of the election and what it says about the incumbent party. Can you share that with us?

RYAN DETRICK: Yeah. Today Is exactly three months from the election. And when we took a look going back till 1928, Myles, there have been 23 elections. The stock market's been right 20 of them. What do I mean by right?

If stocks are up the three months before the election, the incumbent party usually wins. If stocks are down three months before the election, the incumbent party usually loses. Why is that? Well, maybe, markets comfortable with who they thinks gonna win. They know what's going to happen, or they're uncertain.

Think about 2016. Stocks sold off ahead of 2016 that, kind of, sign that maybe it wasn't so obvious that Hillary Clinton was gonna win like everyone thought they would. So how stocks do the next three months could be who's in the White House come next-- or who wins the election in November, and then officially in the White House next January. We'll, obviously, watch that one very closely.

MYLES UDLAND: And, obviously, Ryan, we're gonna hold you to that, and it'll be your fault either way. [CHUCKLING] So we can talk about it then.

RYAN DETRICK: It's all right. I get yelled at all the time on Twitter. You guys know that. It's all right.

MYLES UDLAND: There you go. Hey, just--just-- just a guy with some data. [CHUCKLES] All right. Ryan Detrick with LPL Financial. Always great to get your thoughts. Talk to you soon.