Investor Temper Tantrums
“You are not the victim of the world, but rather the master of your own destiny. It is your choices and decisions that determine your destiny.” - Roy T. Bennett
Everyone loves investor temper tantrums.
(Well, almost everyone.)
Those types of emotional outbreaks – particularly at scale - tend to move value from the impatient investor to the patient one which, for the most part, means:
- Long term investors benefit as they’re able to buy things cheaper.
- The media benefits as more eyeballs on alleged emergencies mean more advertising dollars.
- Analysts enjoy more airtime as fear creates the need for predictions.
- Newsletter writers create illusions of safety and new revenue from scared investors.
Yep, everyone loves a good investor temper tantrum, particularly at scale, except for the investors being herded from one upset to the next.
Folks, if you’re not paying for the product, you are the product.
In America, as the political vitriol goes on tilt over the next 30 days or so we will see weakness and emotional, knee-jerk reactions right up to voting day.
- Fear keeping interest rates down and maybe even moving them lower.
- Interest costs will continue to plummet and improve cash flows.
- Fear will reduce expectations and lead to more surprise upsides.
- Energy costs will move lower and improve profits, cash flows and margins.
- And fear will act globally, bringing things to the strongest economies.
As we wish the US President and First Lady a quick and safe recovery, US jobs data arrived as a mixed bag with the unemployment rate falling further than expected.
Mind you, I always get a chuckle when "negative misses" on expectations get so much more coverage than the positive beats of those same expectations.
Following those media perspectives with a focus only on the downside is an extremely poor way to meet goals.
As for ISM data and manufacturing orders they continue to impress.
And earnings, oddly enough, also continue to ratchet upward.
Folks, it’s perfectly "normal" for earnings expectations to steadily fall just before the next quarterly charade - I mean parade - begins. We are a little under three weeks out so let’s hope we can just keep this back and forth chop and angst going until then.
And for those continually fearing the arrival of the economic reaper, keep in mind that records continue to be set for the depth and length of this funk:
It’s Your Choice
The data snapshots above tell us a few things:
- Much of the crowd is already afraid.
- A good chunk of the crowd that is not already scared is steadily moving in that direction.
- The moving average (of deeply embedded fears) is ideal for long-term investors.
History tells us that when indicators show this level of fear it doesn’t mark the end of a move up.
And if you bet with the crowd that thinks things fall after periods like this then you’re wagering on the team that has never won.
Inside the Chop
Septembers are sloppy.
That said, tech was working hard to stabilize and retake the lead.
Last week we noted that the relative strength of semiconductors had hit a new record high, which was a positive sign for the broader market long-term.
Bespoke's cumulative A/D line of the Philadelphia Semiconductor Index (SOX) below tells us that, after moving basically sideways for well over a month now, the SOX's cumulative A/D line now looks to be breaking out of that range as it has moved to new highs in the last few days.
That’s exactly what you want to see while the rest of the crowd is afraid, hunkered down, terrified of the future, and hiding in bunkers.
Investors are spooked.
The good news is that they are spooked across the board.
And important long-term lows are being formed.
Focusing on or reacting to a poor September is missing the larger point.
We just finished the best six months in the market since the Great Financial Crisis lows in 2009.
And we should all take a moment to remember what happened after those lows.
With all the turmoil going in in the world, the chart above shows that the end of September marked an "epic six-month (and one week)" run for the US equity market.
Let's think of these moves in a larger perspective and see how things went after all prior six-month rallies of similar magnitudes.
The last time the S&P 500 saw gains of greater than 30% in a six-month span was in 2009 coming out of the Financial Crisis, and before that, you have to go all the way back to March 1986!
The table below show every period where the S&P 500 was up over 30% in a six-month span after not having been up 30%+ in a six-month period in the prior six months.
In the nine prior occurrences since 1928, the S&P 500 has seen relatively strong returns over the following one, three, six, and twelve months and saw positive returns at least 75% of the time.
For the one-month period, the S&P 500 had a median gain of 3.57%, and one year later, it was up by a median of 12.5% with gains 89% of the time.
When they tell you that the financial reaper is knocking on the door of your fears (again), laugh at him and look forward, not back.
Long-term investors have learned that when all the above ingredients are baked into the pie, the road ahead has been marked by one clear and resounding message.
There are surprises underway to the upside.