People Still Don't Believe

When I tell folks that I think markets have the potential to do well for the rest of the decade I tend to get three reactions.  Folks usually assume that I'm "talking my book".  They think I need to be positive all the time because I need markets to go up.  Well I'm not positive all the time, although I carry a generally optimistic view of the future.  The caveat there is that humans are flawed creatures and my positive outlook is tapered by a believe that progress will come in fits and starts.

Most of the time folks either flat out don't believe me or nod and agree while skeptically hoping that I'm correct.  I NEVER get this reaction.  "Oh my gosh Chris, I think you're right.  Let me get you my checkbook.  How about let's start with $X00,000."  There was a time many years ago and at the end of an 18 year bull market when that's exactly what would have happened.  Individuals still don't believe in the markets.  They pain and fear of the 2000-2009 period is still too fresh.  CNBC did a story on this yesterday.  Titled, "Mom and Pop are Still Not Believers in the Market", it discusses how investors have largely held on to cash in the face of a substantial bull market in stocks.  here's the main premise excerpted below:

"Since the S&P 500 hit its 666 intraday low on March 9, 2009, the stock market index has been on a volatile but primarily upward trajectory.  The market has wiped out all of the losses it suffered during the financial crisis and soared past its 2007 then-record high of 1,576.  Not shown on the S&P's chart, though, is something less tangible: A level of trust in the market that began to dissipate during the 2000 bear market, re-emerged during the heady days prior to the crisis, and which, by most accounts, has failed to return despite the meteoric market increase.

The big returns have not convinced many mom-and-pop investors that the market is not still stacked against them—a mere plaything controlled by central bankers and computers that is apt to explode again once the next crisis presents itself.  ......While stocks have soared, the retail crowd has been decidedly underinvested and is just now coming off the sidelines.  Since 2000, fixed income has taken in nearly $1 trillion, while equities have lost nearly $400 billion. That tide has turned this year but the main question now is whether it's too late. After all, the nature of the market is that most investors buy high and sell low, entering at peaks and exiting in valleys."

CNBC's article chronicles how money has funneled into fixed income since 2008.  We've warned about this in the past most notably here, here, and here.  2013 is when those warnings about the bond market have come home to roost.  While I haven't seen the most recent numbers.  I do know that so far this year, bond fund through August 1 had lost 2.3% for the year according to the Barclays Capital Aggregate Bond Index.  {See Pittsburgh Post-Gazette}.  August was a horrid month for bonds so those returns now have to be a lot worse.  So many investors are stuck in low return investments while looking at a stock market that's up over 100% since 2009 and wondering what to do.  

While I don't know what the majority of them will end up doing with their cash I do know that it's not beating a rapid rush into the markets.  Its grudgingly syphoning in.  For investors that's a good thing.  There's no long term euphoria built up yet.  The public doesn't believe yet.  It will take many years for them to do so again.  When they do will be the time to be longer term concerned.  

Stocks have had a great year.  I don't know if where we stand today represents something near the peak on a shorter term basis or if we've seen our pause for the fall and are about to head higher.  I do think that probability suggests that on a longer term basis we continue to move higher, albeit in fits and starts. The folks just coming back into stocks, the ones to coin a phrase from a current commercial for a prominent insurance company, who "need to invest again" are late to the party.  They have missed a really nice rally and are probably wondering if they've missed the boat.  Again I'll say that I don't know what happens in the short run, but I think we are a long ways off from the ultimate top in this bull market.  We may not do much for awhile.  Stocks might stall out and do nothing now for maybe something longer than a few months.  But in what should matter to most folks, the really longer term picture in terms of something like a secular bear market, today is not that day in my opinion.

*Long ETFs related to the S&P 500 in client accounts and personal accounts.

A note on posting schedule.  I'm out on business Friday and Monday.  I will have a full week starting next Tuesday.  Thanks.