<<"Looking at the textbook and history of the market, it looks like there's potential for a rally," said (the manager of a fund that beat 74 percent of its peers last year). "It would be risky to be out of the market right now."
(Bloomberg.com - Strategists See 17% S&P 500 Rise on Fed Cuts After Saying "Buy" - 1/5/09)
Eleven prominent investment strategists were polled for the above captioned article. Ten saw the market rising in 2009; one saw the market declining by 3%.
The sentence I chose to display above in bold type is, in my opinion, characteristic of the thinking of too many investors in January 2009; namely, that the risk these days is that of missing a big rally rather than that of major additional capital losses.
I also received on Jan. 5 the results of the "CNBC Trillion Dollar Survey" (in which I had participated). According to CNBC, "These survey results represent the opinions of 49 of the nation's top money managers, investment strategists and professional economists. They responded to CNBC's invitation to participate in our online survey. Their responses were collected between December 22 and December 31, 2008."
Some highlights of this survey:
95% expect the S&P to gain 5% or more in 2009
26% expect the S&P to gain 20% or more
0% expect the S&P to be down 20% or more
73% believe the US government is on the right track to solving Wall Street's problems
69% rate Ben Bernanke's performance an "A" or a "B"
91% say the Obama administration will do the same or better than the previous administration in handling the economic crisis
From those who returned comments with their surveys, the most popular bullish argument was that the various fiscal and monetary stimuli will jump-start the economy. Others stated that we were closer to the end of the recession than most anticipate; that you are fortunate if you have not yet had to sell; that this is the time to buy a la Warren Buffett ("Buy when others are fearful"); and that the risk is not being in the equity markets.
It would be foolish of me to imply from this information that there is no fear out there, or that there are no bears out there. A total absence of negativity in the current economic environment would, in fact, be indicative of a mass psychosis. At the same time it is natural for people in the midst of dire circumstances to want to hold out hope for a better future (see "Presidential Election, 2008"). But what makes it easier for us to make it through the night and get up each morning is vastly different from what is good for the stock market. And I see the sentiment backdrop detailed above as very dangerous from the perspective of its prognosis for the market.
We're about to move out of the most positive seasonal 3-month period (November-January), and the market has very little to show for it in terms of a recovery from its lows. We remain in the throes of a bear market from a technical perspective (see accompanying chart of the S&P 500 Index with its 195-month moving average), and economic recovery is a vague promise with nothing at all grounded in current reality. When the technicals and the fundamentals are in such dire condition, the only saving grace for stock market investors is a sentiment backdrop that would be characterized as one of "despair." A backdrop that is indicative of no hope - for now and for the future. A backdrop in which strategists do not glibly cite such cheap bromides as "The risk is in not being invested," and "The market has overdone it to the downside as much as it overdid it to the upside," and "The stock market discounts current weak economic conditions and will soon begin to rally based on a recovery in the economy." With a "no hope" sentiment backdrop, it is usually fair to say that a big enough constituency has bailed out of the stock market to lift a very large share of the selling pressure, and that any incremental buying could create a major surge and mark the end of the bear market. >>
For more/final comment and accompanying chart see:
schaeffersresearch.com
Woody |
