Thanks for the Bull Market, CNBC!
As many of you know, I have been a long-time critic of the various television business networks. While they purport to provide viewers with usable information about business and investment markets, their true mission is to sell advertising, and what sells advertising is more eyeballs glued to the screen, and what drives those eyeballs is sensationalism – especially of the Armageddon variety. We don’t tune in to hear that business conditions are pretty good and the stock market might go up 7% this year; we can’t help but tune in if we hear trumpets and see flashing graphics announcing the next black swan event that will drive the market down 50%.
But here’s the good news about all this seeming bad news: it’s helping to sustain this bull market. What keeps a bull market going is the same thing that sells advertising – worry, and the more the better. As the old saying goes, bull markets “climb a wall of worry.”
Raymond James Chief Investment Strategist Jeff Saut recently offered his friend Leon Tuey’s thoughts on this paradox. Leon is a retired Canadian technical analyst.
SENTIMENT FACTORS: Sir John Templeton accurately observed that “bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria”. Despite the longevity and power of this great bull market, investors are far from euphoric. In fact, in early February, investors panicked globally as fear skyrocketed, most unusual as this is the sentiment evident at major market bottoms, not at market tops.
SUPPLY/DEMAND FACTORS: Typically, at important market tops, investors are heavily invested in equities and hold very little cash whereas at major market bottoms, investors hold little equities and sit on a mountain of cash. What is unusual about this bull market is that despite the spectacular gains already achieved and the longevity of this bull market, investors are still sitting on a mountain of cash and very little equities. In my more than 55 years of experience in this business, I have never seen such supply/demand imbalance, so much money chasing so few stocks.
The supply/demand condition can’t be more bullish. Note the following. For years, stock listing on the NYSE has been plunging. At one time, over 8,000 issues were traded and today, less than 4,000. (Moreover) helped by the tax cut, share buybacks have skyrocketed. The IPO market is quiet as a mouse as firms are flush with cash. Investors, big and small, have been exiting the market. In the first quarter of the year, BAML reported that “investors yanked $29.4 billion out of exchange traded funds and mutual funds, the most for a three-month stretch since 2016.” While supply has contracted significantly, potential demand has surged. Individual and institutional managers are sitting on a mountain of cash. Amazing!
I don’t see this “bad news manufacturing facility” – which is what the mainstream business media has become – being shut down any time soon. It pays too well!
And in the hyper-politicized era in which we now live, at least 50% of the population will always be unhappy and inclined to pessimism because of the party affiliation of whoever might be occupying the White House.
My advice: encourage acquaintances you don’t really care about to watch the business news as much as possible and fill up on doom and gloom, while you keep a level head and refuse to be taken in.
 Raymond James Morning Tack, 5/24/18, The Big Chill