On The Wrong End of Market Sentiment
"Same old fear and same old crimes, we haven't changed since ancient times." Iron Hand, Dire Straits
It’s no secret the vast amount of the media coverage about President Trump has been, well, less than stellar.
In fact, it's the strongest and most negative coverage that I can remember following any politician…ever…for such a long period of time.
Eventually, one or the other will tire out.
Sadly, the impression to most is that the market has come under selling pressure driven by these "Trumped Up" fears. In reality, since February 17th, we have literally gone nowhere.
The Bulls Have Exited the Building
In the chart below we see the latest reading on bullish sentiment on the part of individual investors.
Surprise! It has declined.
According to last week’s AAII survey, bullish sentiment declined to just 25.71% from an already paltry 28.97%.
That's the lowest weekly print since the election, and a record 120th straight week of sub-50% readings.
Bullish sentiment has clearly broken its string of higher highs that had been in place since mid-2016.
And if you and I had only just been given this data, we might safely assume that the markets have gone through a significant correction.
But we would be wrong.....dead wrong.
Now, when I say that this chart is fantastic news that might at first seem a bit odd to you.
Let me explain.
The two charts above are obviously the same. I’ve merely added a line that goes straight across from its current point back to the start of the data.
That red squiggly line moving up from the lower left to the upper right is an overlay of the S&P 500 market index against the sentiment readings every week.
Notice that there are VERY few data points below the purple line across the chart.
In fact, over 97% of all other readings since 2009 are above the current level of bullish readings.
It’s a rare event indeed to see so many investors who are so afraid while markets are not actually going down – we’re a mere 3% off the all-time highs. Just 3 per cent!
And yet, there are only 5 more percentage points of bulls now in the national survey than we saw back in March of 2009 – that’s after a 45% (plus) drop in the markets - and over 14,000 Dow Jones points ago.
Folks, this is what we call a contrary bullish reading.
Now check the latest from the BAML Sell-Side analyst crowd (below).
They’re still more fearful than they were back in March 2009, and they’re even more afraid than they were for most of the 1980s and early 1990s.
Solid Fear Registered
Let the rest of the investor herd get lost in group-think.
The negative tilt is like a constant mirage cloaking the horizon. Maybe they’re waiting for the future to appear “clear.”
But the problem with that strategy is that it never is.
Meanwhile… The Generation Y Footprint
The pitter-patter of grown feet leaving parents' homes continues.
As our work continues to define, Generation Y in the US is set to drive a surprisingly lengthy exit process.
There are tens of millions of them coming and this economy is not ready for it in terms of new demand – that’s a good thing.
It should not be a surprise we’re running out of homes in America.
Think demographics, not economics.
And By The Way…
Forward earnings are setting new highs again.
Check out the data from Dr Ed Yardeni below - it's impressive given such a lack of any positive feelings in the crowd.
Forward earnings have never been higher in the history of the United States.
A Closing Thought
I respect the scary feelings out there. I really do. I’ve lived through them just as you have.
But if we can't see a real correction over the next few months given all this negative noise, the terrible Trump ratings, N. Korea fears, China, Russia and all the other media head-fakes, then please take note: The data suggest the market may be far stronger than many want to accept.
And that’s a good thing.