“Financial Crew, Prepare Them for Landing…”
The preamble to financial news reports should be like pre-flight instructions from cabin crew:
“In preparation for our descent, please make sure your antacid tablets and sick bags are in their ready positions, and that your intercostal muscles, stomach acid, and heart blood vessels are causing feelings of constriction in your chest. In expectation of the emergencies we are about present please do not remain calm and feel free to act on any random impulse to immediately buy Gold, Bonds or move to cash…”
I especially think of this type of scenario when noting that we’ve rallied into earnings season.
Typically, you would like to see nervousness, angst, questions and such about earnings - preferably with some selling before the parade begins.
Alas, we got the opposite this time around which, while not designed to scare anyone, could set the stage for some short-term "buy the rumour, sell the news" type chatter and price action.
I would not be at all surprised to see some congestion here as price action (ideally) could chop a bit internally and carry with it a week or two (or three) of red ink, taking the bulls down even further into low AAII sentiment readings.
Indeed, I would call it darn near perfect if we could get a 22-25% read on Bullish sentiment in one of those weekly updates during earnings season.
If we are fortunate enough to get that, try hard not to stress out - it's been a solid run since the breakout to new highs in October. As noted, we cannot get too uptight when it is perfectly normal to test those areas at times for price support.
The Flip Side
Of course, the other side of the coin is that we get substantially supportive reports across a wide swathe of the economy as earnings season unfolds.
If CEOs and CFOs bump their earnings and project higher growth rates ahead then those hoped for price resets may not unfold at all.
So, as much as it feels good while "nothing but upward price movement" is unfolding, it’s the slow and steady increases over time which tend to be far more productive for the long-term investor.
In other words, melting up increases the risk of a melt-down as emotional churn can get dicey at times.
Our collective jobs then are to keep our wits about us and remain patient while others will surely get emotionally fearful again at some stage.
The Good News?
Massive cash levels remain hidden in defensive plays like bonds, money markets and bank accounts - all setting records for inflows for 2019.
That’s a shocker, right?
Record highs in stocks and we start the very next calendar year with 67% of the crowd not bullish (AAII) and mountains of cash sitting idle.
The overall data remains supportive even as BAML reports in their year-end piece as well:
I continue to suggest investors (in general) remain outright scared of the stock market.
In a punishing tilt and a cruel play on emotions, this is likely to continue as prices rise higher.
The "altitude sickness" discussion we have shared before continues to be real and, as much as I hate to say it, this has historically been great news.
For most of 2019, the "Tariff War" was all the media could focus you on.
Sure, there were a few interruptions but for the most part China was the focus.
The entire time we said China was the latest in a long string of monsters that would soon be forgotten just as soon as the next monster arrived.
Lo and behold, here we are at new highs, record earnings, record jobs, and the end of the China "Trade War" along with a parting gift from Apple - record sales:
Expect new, larger and more dangerous monsters soon.
The focus remains on the long-term horizon.
That’s your flight path, ladies and gentlemen.
Now back to the show…