When Doves Come to Town: Stock Market Update, Friday Aug 29, 2025

[embedyt] https://www.youtube.com/watch?v=FhAegxNMCP4[/embedyt]

Hey, hey, hey, yeah
Hey, hey, hey yeah

When Dove’s comes to town, that’s a doomdayers bain
When Dove’s comes to town, shorts go down in flames
Maybe they are wrong to think that stocks can’t do down,
But they did what they did before doves came to town

The Fed Reserve had paused interest rate cuts for ten months.  The President has enacted the highest tariffs in American history, tariffs which are taxes, in over 100 years.  The Feds balance sheet has shrunk by over $2.7 Trillion.  The war in Ukraine rages on quickly approaching year 4, and still, the S&P 500 sits at new ATH around 6466 as this is written. The equal weighted S&P 500, that’s the RSP, just broke out to new all time highs and breadth exploded higher on Friday August 22, as Federal Reserve Chairmen Jerome Powell brought out the big guns, dropped a quite dovish speech versus most traders positioning, focusing on labor market weakness over Tariff induced inflation, and made it rain stock gains and short covering on a illiquid Friday afternoon in august.

I’ve been managing money for almost 35 years, and the bearish arguments almost always sound so much smarter and well thought out than bullish ones. Sometimes they are hard to resist, but most of the time, they well-put together, coherent, data driven, noise is a sea of an expanding economy and expanding earnings, and inheritly hard to pull off when one of the first rules traders and professional money managers lear is, don’t fight the Fed.  Which nowadays is a bit narrow of a saying in my book and should be modified to, “don’t fight liquidity”.  Don’t fight the money train.  Don’t fight the money wave wherever it comes from.  Our Federal Reserve accelerated federal government spending, lower regulation, lower taxes, high employment levels which leads to high and consistent 401k inflows on paydays into an increasingly passive flow, price agnostic, driven index market.

The saying goes that patience is a virtue, well when it comes to Fed rate cuts, historically that’s been the case more often than not. Both of the next data sets come from Ryan Detrick, chief market technician at the Carson group, whose summaries are must reading for data driven investors and stock market cycle historians.

Here’s the data on Fed pauses between 5 months and a year, the data says that stocks were higher a year later 10 out of 11 times with an average return of +12.9% and a median return of +14.5%.

The 2001 dotcom bust is in there, as is 9/11 terrorist attack both cuts trying to change recession momentum. 7 out of 11 times, the S&P500 was up more than 10%. Looking at that data with a finer microscope, it looks like the gains are weighted to months 3-12, with the first 3 months after the cut being a bit of a wash with both big potential losses offset by decent gains.  What’s this say? It says, based on history, much of the markets initial gain due to the Fed cutting rates in September, if they do, will be discounted by the market before the meeting happens.  If so, don’t expect a parabolic move up post Sept, but rather a likely digestion of YTD gains and choppy market at least into November or early December, when the “chase for performance” and Santa Claus rally usually begins.

For a number of years, the OHFG team has tried to dispel investor fears of buying stocks at ATH’s as historically, returns have been quite positive over future time periods. Historically, ATH’s are NOT bearish and quite an ongoing positive feature in bull markets, both cyclical or secular.

More data from the Carson group showing that when the Fed cuts rate with stocks near all-time highs, stocks were higher a year later 23 out of 23 times. We don’t know if the Fed will cut in September, and there is Zero predictive information in Fed Funds Futures, beyond 5-7 days in front of the meeting, but Powell’s Friday Jackson hole speech, opened the door from about halfway to almost fully open with a door stop on it to keep it from closing.

These two data sets would triangulate to an S&P 500 target of between 7300 and 7400 using average gains sometime in 2026 after a slower early 4q25.

I’m going to go back once again to the Dotcom/AI cycles overlay we’ve been mapping out now since the V-bottom in April to see if this projection of 7300-7400 would make sense based on that history.

Here is an updated overlay of the S&P500 then and now. How remarkable is this.

We are still mirroring the same pattern back during Dotcom almost to the day and week in the S&P500.  Here’s the overlay of my other favorite history repeating the SOX semiconductor index.

Pretty crazy.  Think about it.  The names have changed, the weights have changed and it was  a generation ago, but we continue to mirror that period in investor history.

I still think that it’s likely that August 1^st print was the low for the 2h2025. And while we “should” pullback lower during early 4q, it’s more the first half of 2026 will bring higher stock markets than most investors think.

Volatility has been in a down trend. Both realized actual stock vol and bond vol trending lower.  This has historically been a great thing for uptrends in stocks over months and quarters. Lower bond vol is a key to leveraged players buying more assets as Treasury bonds are the lowest risk collateral in the financial markets.

Higher nominal interest rates are not guaranteed to hurt stocks.  If they were, explain a 6400+ S&P 500 with interest rates 200-400bps higher than 4-5 years ago? We are at new ATH’s, up about 10% YTD and the Fed is paused. All those bear calls for a market collapse as the Fed pauses or reduces its balance sheet and we are near 6466, ATH’s.

Investors, we are in a bull market.  Short term volatility has collapsed and that’s without the Fed cutting.  Realized volatility is around 7-8. The costs of forward hedging is very high realitive to actually vol.  To me, that’s the “wall of worry”.  You might not have believed history is repeating but someone does.  Or the market overall does.  What could possibly cause a parabolic move up in 2026 to end the bull market my friends ask.  I don’t know, all I could do is guess.

Trump gets his dovish Fed Chair in April/May 2026, that’s out 6-8 months from here.  AI investment remains strong and tech earnings and revenue keep beating materially.  The accelerated depreciation tax incentive gets more tailwind and drives spending on equipment and people making 2026 EPS too low? China starts opening up again to try to stimulate its stalled and lagging economy?  I don’t know, those are guesses high on my list of reasons made out in mid-2026 for major new ATHs coming, and yes the triangulation leads to 7300-7400 before this bull is over.

As we saw on Friday when breadth EXPLODED higher on Powell’s speech with small caps leading, expect breadth to widen materially if and when the Fed cuts rates.  The RUT2000 loves unforced Fed  because so many of those companies have loads of debt and don’t make money on an earnings basis.  That’s what happens when “Doves come to town” for those of you who like Prince more than BB King and U2, “When Dove’s fly”.

Be prepared in advance of the 4q25, to hear about the “chase for performance into year end” before it takes place.

Regardless of the path for the economy and financial markets in 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, have a blessed weekend, and know that the OHFG team is doing what we can to plan for you and your family’s future regardless of what stage you are at in your career or retirement.

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