No joy in Mudville tonight.
Our Mudville, of course, is Wall Street. What is unbelievable is that unlike the ‘Mighty Casey’, Wall Street’s market is not striking out. And, it hasn’t really struck out since the dark days of 2008/2009, despite the fact that there has been a choir of experts, pundits, talking heads and politicians telling us daily why it should have done so and should be residing in the cellar; or, they are saying the economy is in the cellar already and the market is a ‘dead man walking’. Either way, with this onslaught of negative pronouncements it is understandable that many have come to shun stocks and the market, fearful that the end is nigh. The ‘wall of worry’ is very tall and being reinforced daily.
As market sentiment goes, this is Nirvana!
I’ve made this assertion in past posts and will continue to make it: Bull markets generally do not end in periods of extreme pessimism and apathy toward stocks. Market peaks are usually marked by extreme optimism and a strong affinity for stocks. As such, even though the S&P continues make new all-time highs the potential euphoria is trumped by fear. Sure, we are going to have corrections, maybe even cyclical swoons (bear markets) but on a long-term basis it would appear that we have much further to go (after a thirteen year period, 2000 to 2013, where the S&P went nowhere, zero return before dividends–1550 to 666 back to 1550).
This negative sentiment is not a new dynamic
It has been a continuous feature of this market since the March of 2009 bottom. This is despite the the fact that the S&P 500 has more than tripled in the intervening years. Not only has it tripled, but it broke into new all-time-high ground in 2013 and is up 40% since then. Since 2000 the earnings on the on the S&P have more than doubled with the dividends almost tripling. Yet, there’s no dancing in the streets, no banner headlines as the market continues to move to new highs, no exuberance, rational or otherwise. Many are still totally perplexed as to why the market has done so well.
“Why Is the Stock Market So High? Ask the Bond Market”
Better yet, ask Jeff Sommer and the New York Times. Above you will find a link to Sommer’s article that appeared in this Sunday’s Times. The answer is pretty obvious. Low to negative interest rates offer no competition for stocks. Sommer’s conclusion (again not rocket science): this will end badly. I concur. The difference in our opinion stems from the questions ‘What will cause it?’ and ‘When?’ Sommer and his contributors contend that when rates begin to rise, bond market competition for stocks will come to the fore, depressing both stocks and bonds … the end of the bull market in both markets. However, there are some who contend (and I agree) that rates will increase on the back of a more vibrant world economy, producing much stronger earnings growth, allowing current valuation levels to remain in place. Many deem current multiples high because of nagging slower economic growth. Interestingly these valuations levels could expand if we ever see euphoria creep in to the the calculus. The potential downfall might come later as years of worldwide money printing and deficits result significantly higher inflation. At any rate the tone of this article continues in the vane of ‘be weary, be cautious’ … nothing to be happy about here.
Count on Barron’s Randall Forsyth to reinforce the negativity
Forsyth’s “UP and Down Wall Street” column in this week’s edition of Barron’s was unconstructive as usual. After scouring both the Trump and Clinton campaigns (“Trump’s Sarcasm, Hillary’s Cynicism”— you will need a subscription to view this link), he proceeded to discuss the economic/GDP news of the week, opining that the GDP numbers were “in sum, better, but far from good.”
He then launched into a discussion of the general market– “OCTOBER, MARK TWAIN also famously observed, is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” He goes on to add fun facts about August stock markets — “In the past couple of decades, August, the month associated with the sweet summer idyll that we’re now entering, actually has been the worst for the stock market.” Of course he provides collateral backup for his continuing negative bias. The message is simple: invest at your own peril. Gimme a break! What does this nonsense have to do with investing?
Bottom Line
‘No tree grows to the sky.’ There will be setbacks, but the ‘wall of worry’ remains in tact and unscalable for many. As bad news sells, it would seem to reinforce the negative-sentiment underpinnings of the current secular bull market. This dynamic is very much in the hands of the media and politicos and will continue. Accepting ‘no joy in Mudville’ for what it is should put a spring in your step and money in your pocket.
What do you think?
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