Market Commentary: Good sweat…

So what’s got the market so cheery? Is it the Fed not raising rates and not sounding too aggressive toward that aim? Well, sure! The market — after the Fed’s announcement and Janet Yellen’s press conference — spiked higher in a big way, waffled a bit, then smashed through what had been recent resistance.

But, still, there seems to be so much angst and fear out there, how can the market go higher? Well, strangely, that angst and fear may have a lot to do with why the bull market, for now, continues.

Sir John Templeton coined one of the very best phrases related to the market that I’ve ever heard. I say it’s one of the best because it’s been, in my observation, one of the most prescient. It’s:

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

This all should sound familiar to regular readers. For newbies, I’ll explain briefly how I perceive what I believe to be the prevailing market emotion:

At one extreme there’s the fear of losing, at the other there’s the fear of losing out. Now consider the overall positioning of investors when the predominant fear is the fear of losing. Yep, very defensive, very liquid. And how about when the predominant emotion happens to be the fear of losing out? Right again, very aggressive, fully invested.

So how would folks respond to some event, say, the Fed not only not raising rates at its policy meeting, but issuing a statement much softer than they had expected. Uh oh! If I don’t buy, I might lose out! So, going from the fear of losing to the fear of losing out forces stock prices higher, as cash-rich panicky buyers meet up with reluctant sellers.

Here are the results of the latest AAII weekly sentiment survey:

Individual investors were suffering mightily from the fear of losing out coming into today’s Fed announcement.

Here’s the latest from the BofA Merrill Lynch Global Fund Managers Survey (bars to the right show over-weightings relative to the historical norm, the left shows under-weightings): HT The Fat Pitch Blog


Mutual funds hold unusually large (relative to history) cash balances and are grossly underweight equities overall.

When asked the extent to which they’re taking risks, fund managers, per the next chart, are, well, let’s just say bullish they ain’t:

Clearly, professionals weren’t feeling it either.

So, despite all the doom and gloom you’re hearing and perhaps feeling, the fact that you’re not alone ought to make you feel maybe a little better. Not that there’s not legitimate stuff for short-term thinkers to sweat over these days, but, ironically, it’s that sweat that, historically speaking, keeps bull markets alive. And, make no mistake, bull markets do get very sweaty at times!

Lastly, if you’re our client and you happen to find yourself sweating — and we don’t have a review meeting on the calendar — let’s you and I have a chat right away. Remember, you pay us to sweat on your behalf. 🙂

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