Friends
To be clear, we have been cautious/bearish with regards to stocks (and bonds) since late 2021 when the Fed declared war on inflation. We said then and have reiterated for a year and a half that the Fed’s pivot towards tighter monetary policy was going to take time and be somewhat painful for investors, and it has. Now we find ourselves in a crucial earnings season, which by the way has started rather positively (but it’s early), as investors continuously wait for corporate earnings to fall off a cliff. Around here we tend to “look on the bright side of life” (apologies to Erich Idle of Monty Python), but we are frank with our clients when it comes to detecting storm clouds on the horizon. Where am I going with all of this? Well, today I saw an investor survey that was conducted by JP Morgan Chase which struck me as very interesting. 26.4% of the participants indicated that they thought the S&P 500 would end the year at 4000. 54.7% feel the S&P will end the year at 3500, and 13.4% feel the S&P will end the year lower than 3500. If my math is correct 94.5% of the folks surveyed feel that stocks will end the year lower than they are today (the S&P 500 is over 4100 today). I’ve been in this business a LONG time and I can’t ever remember when a majority of investors that large have been right about anything. This doesn’t mean that stocks will end the year higher than where they are today. But it sure does feed the narrative that I have been hinting at, that because of the overwhelming pessimism in the markets at the moment, market participants might all (mostly) be on one side of the boat. Just some food for thought. Believe me, we know and understand the “stocks are too high for the current environment” narrative. We all know the problems, or at least we think we do. Inflation is sticky, the economy seems to be slowing, politics are a mess, stocks valuations aren’t cheap, etc., but isn’t all of this already known?
Let’s let today’s “observation” take the place of the quarterly piece this time around. I’m not sure I could add anything more constructive at this point anyway. This earnings season is supposed to give us some answers. We will see.
As for today, by the close the Dow Jones Industrial Average was up 100 points to finish the day at 33,987. The S&P 500 was up 13 points to close at 4,151. The Nasdaq Composite Index was up 34 points to close at 12,157. Gold was down $7 to trade at $2,008 per ounce, while oil was down $1.56 to trade at $80.96 per barrel WTI.
So, indeed, pessimism is rampant right now. Warranted? Of course. The environment is difficult. Inflation is too high, the Fed is still raising rates, the economy appears to be faltering. But markets don’t often validate the majority, instead they tend to frustrate the majority. Just another point of view/narrative to consider.
Have a nice evening everyone.
