Investor Points of Few – Don’t Fear The Scareheads

Did you know the word “scareheads” is actually a synonym for “headlines.” Go figure, eh? And it looks like all the rampant financial “scareheadery” going on out there might actually be helping prolong this bull market’s run…”

By Alan Steel

The headlines last Friday seemed to focus more on how US stocks faded in the last 10 minutes of trading to close out the second quarter of 2017, than all the positives out there – like the Dow Jones 3.3% gain for Q2, which followed Q1’s 4.6% rise.

So, have the financial headline writers been tasked to include even the faintest sniff of Armageddon in every caption in order to increase sales and attract eyeballs?

Well, probability suggests the gloomies are focusing on the wrong side of the financial coin, but then again at some point the laws of averages suggest they might get lucky.

But that tactic just now is not only pushing individual investor sentiment even further into the red, but is actually a boon for the markets.

Our good friend Mike Williams shows us exactly how dour investors are feeling about stocks in his latest article, The Bull Market’s Protein Shake.

In fact, Mike tells us that part of the secret sauce that’s helping to keep this eight-year-old (and counting) bull market running is the negativity that’s keeping $9 trillion in the US in deposit accounts, along with several trillion pounds on this side of the Atlantic.

Mike writes: “Now, in a contrary investing sense, all this lack of excitement over the markets continues to be the very support for the lack of significant pullbacks. The fact that a great many investors appear to be fretting over when “It” will come is actually acting like the equivalent of a bull market protein shake just now – it’s using it as energy.”

It’s a double-edged sword (hey, aren’t they all?): On one hand the negativity seems to be helping the market by keeping enthusiasm in check, while on the other hand millions of investors have been losing out on relatively steady stock market gains since March 2009, because they’re listen to all that negative guff.

So, as for the big question: Are we on the brink of recession?

Well, I’ve got no crystal ball in Linlithgow. But there are a few things that suggest the big “R” is unlikely just now:

  • Sentiment is negative – it’s almost always the case that markets don’t crash when sentiment is poor. They crash when everyone is euphoric about them. And even a mild enthusiasm about equities is hard to find just now.
  • The folks at leading financial research houses like Ned Davis and Pring Turner are anything but negative on equities – as I wrote yesterday in A Lesson in Buffett, Banks & Buybacks, recommended equity allocations are at or near their highest levels from Ned Davis.
  • Barry Ritholtz has posted a chart that shows the state of the “Big Four” economic indicators, from which you can form your own conclusions…

My view?

Don’t confuse scareheads with financial advice. You might find yourself on the wrong side of sentiment.

And after all is said and done folks, it’s your money we’re talking about here.

Alan Steel, Chairman, Alan Steel Asset Management

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