In this week’s episode of Retire in Texas, Darryl Lyons, CEO and co-founder of PAX Financial Group, reflects on the unexpected chaos that unfolded on August 5th and its impact on the financial markets. Sharing a personal story from his recent trip, Darryl walks listeners through the challenges of managing market volatility and the relentless nature of news cycles. He discusses the importance of maintaining a clear perspective amidst media-induced panic and provides a detailed outlook for the fourth quarter of 2024, emphasizing historical trends and their relevance to today’s market.
Key show highlights include:
*A firsthand account of navigating market panic while on vacation.
*Insights into the historically volatile nature of October and how to prepare for it.
*An analysis of the upcoming election and its potential impact on different sectors.
*The significance of diversification and stress-testing portfolios in uncertain times.
*Practical advice for long-term investors to stay grounded during market turbulence.
Transcript:
Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group, and you’re listening to Retire in Texas. This information is general in nature. It’s not intended to provide specific investment, tax or legal advice. Visit PAXFinancialGroup.com for more information.
So, for those that were paying attention August 5th this year, there were some chaos going on. And you might have seen the headlines, some of the headlines, some of the news feed, some of the alerts said market crashing. It was the, it was the worst day for Japan since 1987. And the headlines were horrific on August 5th. Now, I was at the lake. My brother-in-law has a lake house going up towards the DFW area, and I was relaxing with my family. I do get a call that morning from the local news station in San Antonio asking for an update, a live interview.
But I’m at the lake. I agree, but I’m at the lake so I don’t have live interview clothes. So, I rush over to the closest small town which was 20 minutes away. I find a Walmart and I actually wanted a jacket, and they didn’t have any jackets in Walmart. Just to note, at least at that time. I was like, “Okay, there’s a Beall’s.”
I hadn’t been in a Beall’s in years. So, I rush over to the Beall’s, and they don’t have a jacket. I’m like, “Okay, but is there anywhere around here that might have a jacket?” So, I found a Goodwill and they opened at ten. So, I kind of waited around, and the parking lot is actually pretty peculiar when Goodwill opens at 10 a.m. But right when the door opens, I go in there and they do have jackets, but they have some stains and notable issues with them.
So, I just pull up a few Goodwill collared shirts, grab them, now it’s [10:00]. I’ve got to race over because the interviews at 11, you know, I don’t want to get there at 11. And I’m already nervous because we had this issue on our expedition. It was just a mechanical issue. It was the clutch, that’s what it was.
So, I was a little nervous that that was going to be problematic. And all the while I’m listening to the markets because I need to make sure I’m coherent and I know the latest news. So obviously it was a little tense. I get there, I asked my wife, I called her, I said, “Hey, can you have everything set up and just test for it?”
And so, she did. She had everything set up. I get there, I jump on after I got changed and fix my hair, and we passed pleasantries, they make sure the mics work and everything’s working okay. And then all of a sudden, the internet du du du du. And so, I’m stuck. Right? So, the internet’s down. They’re texting.
I say, “Hey, I’m not, I’m not live. I’m trying to get back on.” They said, “Okay, we’re going to jump to weather. We’ll wait for you.” Cool. So, I get back on thankfully, and I do the interview and in the interview, I have a glitch. Now, I’m prepared for the interview. The interview came out great, but there they did lose me halfway through the interview. Everyone handled it professionally. But there was another internet issue.
That was August 5th. That didn’t include the text that I’m getting, nor the social media post, like a lot of social media posts, “Stock up on supplies. This whole thing’s a casino.” Even a State Farm guy said, “You should buy life insurance instead of putting it in stocks.” I’m like you must not even be able to do math to make that claim. And then, of course, what would probably disturb me the most about August 5th was getting a phone call from a client who’s, you know, a lot of clients become friends, and he’s a widower and he’s in his 80s, and he’s worried. And he’s worried about the future of the country. He’s worried about the markets. He does not, he has enough money by the way, he doesn’t have to worry about the markets at all. I know his financial situation. But the fact that he’s worried, the fact that there’s this undue stress on him that’s a byproduct of these headlines, that’s what bothers me.
I feel a sense of responsibility, and I know that everyone at PAX does to carry the burdens of a lot of people that just don’t want to have to deal with this nonsense. And it was hitting them because you just can’t avoid the media and the social media when things happen like this. And it happened, by the way, this stuff happens all the time in the history of the markets, you get these kinds of days. It’s part of it. But it hits us in such a way that we freak out. And so I say all that up because I scratch my head and I go, “What can I do to help our community just to think through what these future chaos moments might look like and how we can navigate through them.”
And so I have a degree of righteous anger against these media companies, and the way they hijack our brain and the way they manipulate us. And I want to try to get in front of that as best as we can. I understand there’s going to be challenges of trying to completely circumvent these emotional roller coasters, but let’s do the best that we can. And so, what I’d like to do is give you a lay of the landscape of what the fourth quarter of 2024 might look like in terms of the markets.
Now we are in August, so I’m producing this in August. Just know September has historically been a pretty choppy month. Not always a great month for the market historically. Now, all of this is to say that even if you look at historical months, they’re not 100% accurate. We call that, you know, calendar investing. You can’t really rely on that. Brown University did a good study on this a long time ago.
But, did you know, this is interesting, did you know the percentage of times that the stock market goes up in the fourth quarter? What percentage would you guess? What percentage of times does the stock market go up in a fourth quarter? October, November, December? It’s 80% of the time. It goes up in the fourth quarter. Since going back since 1950.
Now, again, history doesn’t repeat itself, but often it rhymes. And the way I look at life is if the probabilities are that high, I need, hear me out, I need material information that would change those probabilities. So, the probability is 80%. I need some information that would materially change those probabilities. And you might say, “Well, first of all, Darryl, we’re living in a totally different time. And this is absolutely not the 1950s, 60s, 70s. This is just crazy.” And I would concur.
So maybe that moves me down to, “Hey, look, 80% of the time has gone up historically, maybe now about 60%.” But does it move the needle to lead me to believe that it’s probably going to be a bad fourth quarter? Not entirely. Let’s go, let’s kind of unpack this month by month. So, let’s get into October. So, we have Halloween. And what is really kind of crazy when you think about it, is the fact that Lowe’s starts setting out gigantic spiders and seven-foot freaks standing reapers in August. Like man it’s only August and you’ve already got this stuff out. That’s in and of itself challenging.
But October is supposed to be a debate month. We’re supposed to turn on the TV and see all these debates and then turn it on the news and get everyone’s opinion. Will we get debates is a big question. I have no idea. I kind of doubt it. But historically interesting about October, historically, it is a volatile month. Now, when I say volatile, I mean it goes up and down a little bit more than normal. We measure this by something called the VIX index, VIX. You can look this up. And historically in fact in the last several months it’s been really calm. The index has been about 12 or 13, been really nice. And then it jumped up on October 5th when I was in Beall’s.
But I think prior to October, the reason it’s kind of calm is because you got a lot of people that are going back to school, and then you’ve got kind of this transition into school, into college and just distractions. And then October, I guess everyone’s like, “Okay, let’s start working in the market.” It has more participants, and it gets a little bit more active. And so, we have more volatility in October. So just kind of expect volatility, ups and downs in October.
So that’s the lay of the landscape historically. Now going into November, November is actually contrasted with kind of the characteristics of October being volatile. November has actually been one of the best months for investing, historically being. My guess, it’s the month that we’re all grateful. It’s Thanksgiving. But we have a specific date in November that you might want to mark your calendars, and that’s November 5th.
And so, that obviously changes the game, with the election. And here’s why it changes the stock market game; because, and I’m going to reference Steven Cress from Seeking Alpha. He said, “Okay, if Harris gets elected, that’s going to be good for technology stocks, electrical stocks and cannabis stocks.” And if you want to see more, I’ll put a link to this. Their 2019 climate plan is a $10 trillion plan. You can get clues to what might make successful companies, as a result of a Harris presidential election winning the presidential election.
But if Trump wins on the other hand, what stocks might do? Well, well, it’s typically going to be a deregulatory environment. So, the Defense Department might gear up a little bit more. We got to modernize the military, boost in domestic manufacturing, and of course, just, as always, making the U.S. a dominant energy producer. So, what’s going to happen up to the election is people are going to try to get in front of the final results in the stock market. So, you’re going to see these companies ebb and flow in terms of their performance trying to anticipate who’s going to be elected. It’s just fun and games. And frankly, it doesn’t really matter too much to us that have a long-term time horizon. But that’s why the market gets a little bit crazy in an election time period. Trying to get in front of that.
Now we go into December, which is also historically been a good month. But what you’ll see in December is a Santa Claus rally towards the end of the year, the last five trading days of the year, and a couple of days going into January. But one big event that’s worth our attention, that actually I mean, it’s not as big as the election, but it very well could have an impact on the market, is the FOMC, excuse me, FOMC.
They’re going to be meeting in December. And here’s a quote from Jonathan Pingle, who’s a Chief U.S. Economist at UBS. He said, “We expect a 25-basis point reduction in the target range at the September and December FOMC meetings, barring a meaningful upside surprise in the inflation data.” So, we could see the interest rates go down in December, which the markets will have, which will, it depends on what happens ultimately coming up to if they’ve priced it in all together, they’ll be no surprise.
If they have it, there could be a surprise and some shocks one way or another, good or bad. So that but that does play a factor is the FOMC meeting in December. So, you know, the election is really the big one. I mean we all know that. And I certainly have convictions in, you know me by now, I have deep convictions about what leadership looks like. I’m still of the opinion that everything rises and falls on leadership. And my vote is really aligned with my values and what party really aligns with the platform in my values, rather than the personality. But I really believe that the markets in general will still function on November 6th.
Now, yes, we might have some contention of some sort, but I still believe that the next day, somebody who is going to show up to Starbucks and pay more than they should for coffee. I still think that you’re going to need to fill up your gas tank. I still believe that the football game is going to be on, and somebody’s going to buy beer and send a text message using their AT&T phone or wireless service using their iPhone. Some of us may go to the doctor and use surgical equipment or get pharmaceuticals just to function, and other businesses will still go to the banks and borrow money or make deposits. And all of these goods and services, they will still function, and the market will still continue with or without Harris, with or without Trump. It still will function.
I’m not discounting the nonsense that exists. I hear you, and I get it. And it all concerns us that we’re not leaving the world better than we found it. I completely get that. But when it comes to the markets, I just need to see considerable evidence that it’s going to completely stop. Or as some people say, “Democracy is going to end as we know it, or it’s going to completely collapse.”
Some of that, some of that is sitting in our hearts and we need to recognize it for what it is, it’s really nonsense. We’re still going to function as an economy. The probability in the fourth quarter that the market is going to go up is 80%, based on historical numbers, and maybe it’s a little off this time, but I don’t have enough reason to believe that it’s going to be terribly, terribly bad. Volatile? Yes. Probably good for those of us who can just turn off the news, it’ll probably be just fine. Again, I don’t have a crystal ball, but I just look at the evidence to try to follow the evidence.
So, what do we do about this? We got a taste of it. August 5th. So, what do we do now? Okay, what lesson did I learn? I feel like I’ve been trained in this stuff. I’ve been doing this since ‘99. I should have some training. Okay. I go to the lake; I go on vacation. It tends to happen when I’m on vacation. Okay, why don’t I just bring a shirt and a jacket every time I go on vacation?
Okay, that’s my lesson. I pass my lesson along to you. Next time I go out of town, I’m going to bring a shirt and a jacket, just in case I get a call. Okay, that’s my lesson. Let me share a few lessons that you might be able to adopt if you freaked out on August 5th as well. First of all, turn off the news like it is really nonsense. There’s nothing you can do about it. Just turn it off. And I know I say that I want you to be informed, but some of this stuff is just really nonsensical.
Make sure you’re diversified. The bonds in your portfolio are there for a reason. I love bonds right now. The rates are good. They’re just a healthy piece of your portfolio, and they’re there for a reason. A lot of times when we think we’re invested, we think we have all our money in the stock market. We forget we probably have half of it in bonds. So, you know, you may check with your advisor just to make sure, because bonds, the way they behave is if the market does collapse, you’ll fall off the porch, not the roof.
Stress test your portfolio with your advisor. I’ve mentioned this before, do those Monte Carlo Analysis and determine what happens if the market crashes to my life. And you’ll probably find you’re going to be okay. Check your check with your advisor, you may want to do some hedging. We use structured products as fiduciaries. We do not get paid a commission on selling any structured products. Be very clear, we’re fiduciaries. Those are tools we use to hedge, which you may reduce some of your upside but have some risk management, some downside protection. There’s some complexities to those. Be sure to visit a previous podcast that I discussed that in more detail, and check with your advisor to see if that would be a tool to help you navigate some of the volatility.
And then finally, don’t forget, historically since 1950, I’ll put the link to this information in the show notes, the stock market has gone up 80% of the time in the fourth quarter. So, I’m with you. There’s definitely reason to be nervous. But that’s life, isn’t it? I mean, that’s how life works. There’s always something to worry about. I sure am glad I have my faith.
I do have convictions, and I do sleep at night. I hope I can carry not just myself, but our whole organization can carry the burden for you to a certain degree, so you can sleep at night, make memories, and spend time with the people that you love, and remember that you think different when you think long term. Have a great day.
Tune in for an engaging episode filled with personal anecdotes, valuable market insights, and practical tips for staying the course in your financial journey. For more resources, visit http://www.paxfinancialgroup.com. If you enjoyed today’s episode, share it with a friend!
References:
- Why is October the Stock Market’s Most Volatile Month? (hbs.edu)
- Top 5 Stocks If Kamala Wins The Election: Harris Trade Versus Trump Trade | Seeking Alpha
- Top 5 Stocks if Donald Trump Wins the Election | Seeking Alpha
- Sept. 4, 2019 – Kamala Harris’ $10 Trillion Comprehensive Climate Plan Outlines Bold Vision to Build Clean Economy By 2045 and Create Millions of Jobs (democracyinaction.us)
- 2024 Election Insights | J.P. Morgan Asset Management (jpmorgan.com)
- What fourth quarter market history means for your money (cnbc.com)
- Best and Worst Months for the Stock Market – Seasonal Patterns – Trade That Swing
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