Sentiment
Sentimental Musings
Long-term sentiment indicators have carved out a four-month pattern similar to what we’ve observed in Large Cap valuation measures. That’s no surprise; valuation is a sentiment measure.
Sentiment Has Been Crushed, But Might Need To Just Languish For A While
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We didn’t see the coronavirus coming and, like millions or perhaps billions of others, underestimated its likely economic impact when it began to spread. But stock market risks were high well before the virus hit.
Here’s One Reason Sentiment Is So Subdued...
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Market bulls remain mystified by the lack of enthusiasm for stocks given the proximity of U.S. indexes to all-time highs. They view this relative indifference as a contrarian positive—the “wall of worry” argument.
Odds & Ends
Here are some brief follow-up notes on topics covered in recent months’ Green Books.
Are You Really A Contrarian?
The need to sound contrarian has become a borderline obsession among market pundits. Media opportunities for talking heads have exploded in the last decade, forcing those who hold the safest consensus views to falsely portray themselves as lonely and misunderstood market mavericks.
Leuthold Quick Takes: Getting Sentimental
This issue of Leuthold Quick Takes reviews the conflicted nature of investor sentiment as seen by Doug Ramsey (Chief Investment Officer) and Jim Paulsen (Chief Investment Strategist).
Building The Wall?
One of the more impressive feats that bullish pundits have pulled off is their successful portrayal of themselves as lonely and misunderstand contrarians even as the eleventh year of a cyclical bull market grinds on.
1999 Redux
As the market rebound has extended, we’ve noted its striking similarities with the rally of 1999—one that might have been the most speculative in U.S. history.
You Call That A Panic?
Christmas Eve came not with snowfall but a market freefall which was the worst-ever recorded for that date.
Market Observations
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It’s been one of the worst years on record for diversification, with our hypothetical All Asset No Authority (AANA) portfolio down 7.2% YTD through yesterday. That’s the second-worst year for AANA since 1972, and there’s probably not enough time left for performance to undercut 2008 (-24.9%) for the bottom spot.
Time To Get Contrary With Commodities?
After a strong 2016 and a “Bridesmaid” (i.e., sector runner-up) performance in 2017, the Materials sector seemed primed to benefit from the “late cycle” character of the economy in 2018.
Investor Temperament And The “Tape”
In the first week of October, the share of newsletter bulls topped 61% just as the NYSE percentage slid to 41%. Maybe it’s a seasonal thing… the last time that happened was October 2007.
A Troublesome Commodity Pattern...
During each of the last five months, the U.S. economy has shown a broadening array of “late-cycle” characteristics.
“What, Me Worry?”
Our shortest-term put/call measure has yet to reflect the level of fear usually triggered by a correction of this size. Meanwhile, the market setback has done almost nothing to stymy the optimism of either market newsletter writers or mutual fund timers.
A Long-Term Take On Sentiment
We impatiently published this study two months ago instead of properly waiting for full-year numbers.
A Long-Term Take On Sentiment
Tax cuts, a strong economy, and daily stock market records have lifted measures of investor sentiment to levels not seen in two decades. But sentiment is only a slightly better timing tool than valuations (which is not saying much), and there’s plenty of room for excitement to build before a final top is at hand.
Not A Tipping Point, But A “Toggle” Point?
Evidently, being a bull in a bull market is no longer good enough.
A Longer-Term Take On Sentiment
Stock market bears had a field day when the latest Investors Intelligence sentiment survey (Chart 1) saw the percentage of bullish newsletter writers spike to its “highest level since 1987.”
Thoughts On Sentiment
The MTI’s Attitudinal category has held stable over the last several months, an impressive (and contrarily bullish) feat considering the steady onslaught of new bull market highs.
A “Good Year” To Start The Year
The S&P 500 was up 6.4% YTD through March 3rd, a bit above its average annualized gain of 5.9% since 1926. In other words, 2017 would be a good year if the books were closed today.
Stock Market Observations
We revisit our “Red Flag Indicator” of prior bull market tops versus today. Usually most of these internal market measures will deteriorate in advance of the final bull market peak. At the latest S&P high, three of the seven leading measures had raised Red Flags, by not confirming, but two of them (DJ Transports and the NYSE A/D Line), are within just ticks of new bull market highs.
Bond Bubble Spills Into Equities
The S&P 500 once again remains on the verge of a new bull market high, thanks in large part to the bubble in another asset class: Bonds.
EM: Improved Sentiment But Macro Risks Still Dominate
Positive forces may be transient. Be wary of EM’s high correlation to commodities and Chinese stocks.
Bottom-Fishing In Energy: Beware Of Bankruptcy Risks
New developments have lifted sentiment toward oil and Energy names, but we caution bottom-fishers to be mindful of risks. The fundamentals in the oil patch do not yet support strong oil prices going forward.
Overthinking Market Sentiment
This month’s “Of Special Interest” allots eight pages to the (opposition) view that the correction is over, featuring charts we find the most threatening to our bearish stance. Based on its sudden popularity among the press and punditry, the indicator in this chart—highlighting the air-pocket in investor confidence—perhaps should have been part of that feature. Here’s why it wasn’t.
Market Sentiment Check
One of the drawbacks advantages of tracking so many market indicators is that one can invariably cherry-pick a single measure that supports a given narrative.
Sentiment, The Economy & The Fed
We wrote in the January book that 2015 would serve up no shortage of excuses for the Fed to hold off on tightening all year. Whatever window the Fed may have had is now closed.
Expect A "Round Trip" In Sentiment
When the “most hated bull market on record” finally suffers a steep decline, it’s reasonable to expect that the hatred might evolve into true revulsion.
Stock Market Observations
The U.S. stock market has largely shrugged off the latest round of worries related to China’s stock market collapse, the new down-leg in crude oil, a more hawkish tone in Fed-speak, and sizable second-quarter declines in S&P 500 sales and earnings.
Beware The New ‘Wall Of Worry’
The Volume Oscillator discussed in this section is one of several encouraging developments within our Attitudinal work that has sent that category to its least negative reading (-57, Chart 1) since July 2013.
A Few Thoughts (And A Lot Of Charts) On The Oil Collapse
Has the recent collapse in crude oil prices presented us with a good opportunity for an outright commodity investment? No. Energy stocks aren’t on our radar screen either.
Sentiment: Frothier Than You Think
Last year will certainly go down as the bull market year in which investors were finally retrained (as they usually are, late in every bull market) to buy the dips. Most of our Attitudinal measures—ranging from option activity and bear fund assets, to surveys of investor sentiment—show retail investors finally shaking off the worry that gripped them for most of the bull market’s first five years.
Stuck In Neutral?
Extreme market viewpoints get the headlines, but it’s baked into our disciplines that we will (occasionally) be noncommittal.
Commodity Sentiment Crushed, Yet Commodity Stock Valuations Above Boom Levels
We’ve been negative on industrial commodities for some time, reflecting the persistently (and unsustainably) high levels of investment evidenced by our Global Group analyses of commodity-oriented industries.
Sentiment: Back To The Brink?
Investors are becoming more and more comfortable buying stock market dips. This is obviously latecycle behavior, but sentiment measures alone aren’t enough to tell us how late.
Commodities: Not A New Bull
The year’s second biggest surprise (next to the relentless drop in bond yields) might be the YTD bounce in the major commodity indexes.
Time For A Spring Shower?
The stock market staged a two-day bearish reversal beginning a few hours after the release of the March employment report, a decline that could —based on the bearish status of a single MTI category (Attitudinal)—carry further before it is finished. But with the S&P 500 (and many other U.S. equity indexes) recording a bull market high as recently as April 2, it’s too early to argue the market top is “in.”
Stock Market Observations
With our equity exposure high and our disciplines still tilting bullish, we’re naturally more concerned with what might go wrong than missing out on some kind of 2013 repeat.
A Comprehensive Look At The Emerging Markets: Diagnosis And Prognosis
We examine Emerging Markets from both the top-down and bottom-up perspectives as we try to identify where to move and what to expect. We check in on two successful EM thematic group ideas as well.
Major Trend Moves To Neutral, But Not All Hope For The Bulls Is Lost
Deteriorating Technicals drove the move to Neutral, but a new positive reading in the Attitudinal category gives some hope to the bulls.