Passa ai contenuti principali

Investors Run From Stocks At Record Pace

BIGGEST WITHDRAWALS ON RECORD

There is a lot of relevant information in the text below from a Wall Street Journal article dated December 8, 2019:

"Investors have pulled $135.5 billion from U.S. stock-focused mutual funds and exchange-traded funds so far this year, the biggest withdrawals on record, according to data provider Refinitiv Lipper, which tracked the data going back to 1992."

DOES 2019 LOOK ANYTHING LIKE THE MAJOR PEAK IN 2000?

Given we know extreme sentiment can be a powerful contrary indicator, we would expect exuberant investors to rush into stock-based investments near a major stock market peak, which is exactly what happened in the year 2000. From a Federal Reserve Bulletin dated December 2000:

"Mutual fund investors returned vigorously to equity funds, increasing the pace of net new cash flows into those funds to a record level over the first eight months of 2000."

Keep in mind, the S&P 500 peaked in March 2000 and investors were still adding to stock-based funds at a record pace through the end of August 2000, which looks nothing like what we have seen in 2019.

HOW DOES 2019 COMPARE TO OTHER PERIODS?

As shown on December 2, when investors made a mad dash for the equity fund exits, it occurred near major stock market lows in 2002, 2009, 2011, and 2016.

fund-flows-bnp-graph.png

We just experienced heavy equity fund outflows in 2019, similar to the periods shown in the graph above. How did the S&P 500 perform walking forward from December 2002, March 2009, December 2011, and July 2016? The answer is in a manner that looks nothing like a major stock market top.

Fund Flows SPX A.png

TEN NEW STOCK MARKET SIGNALS

This week's stock market video covers ten "this just happened in 2019" signals. The video also takes a look at the blow-off top cases cited in a recent CNBC article.

DAY BY DAY

The market still has trade-related hurdles to contend with between now and December 15, reminding us to walk forward with a flexible, unbiased, and open mind. The fund flows data above simply helps us with historical perspective on what has taken place in 2019. From The Wall Street Journal:

"There's not a lot of faith in this market," said Scott Wren, a senior global equity strategist at Wells Fargo Investment Institute. "There's no chasing going on. Usually before you hit the top in a cycle, there's a lot of chasing and fund flows are higher."


WEIGHT OF THE EVIDENCE

Common sense tells us, even in the strongest of strong bull markets, we can find concerning data points and scary narratives. There is always something to be concerned about. Markets move based on the weight of the evidence. Therefore, we are constantly evaluating present-day data points and looking for signals that confirm or contradict the bullish hypothesis that was formed in early January 2019.

tv small.png

THIS JUST HAPPENED

The only way we can really understand if a signal leans bullish, bearish, or neutral is to ask and answer the following question:

How many times has it occurred in the past and how did the stock market perform after past signals?

The chart below shows the percentage of S&P 500 stocks above their 200-day exponential moving average. It is rare for this breadth indicator to drop below the blue line, which is indicative of extreme pessimism about future economic and market outcomes. If you know market history, you know most signals that began to form in 2002, 2009, 2011, and 2015 turned out to be great "keep an open mind about better than expected outcomes" signals. The signal shown below is triggered when breadth gets oversold (below the blue line) and then makes it all the way back to the green line. The last round trip took place between late December 2018 and late November 2019.

ciovacco-capital-research-chris-kathy-breadth.png

HOW DID STOCKS PERFORM WALKING FORWARD?

Rather than waiting for something to happen (i.e. market to make a top), the table below is based on something that just happened. In the previous cases, and based on all the data available, subsequent S&P 500 performance was very satisfying looking out three months to five years.

ciovacco-capital-research-chris-kathy-breadth2.png

Continuing with the weight of the evidence theme, ten new signals and S&P 500 performance tables are covered in the video below.

DOES THE BLOW-OFF TOP THEORY HOLD WATER?

The hot topic on Wall Street this week was "blow-off top". How concerned should we be about an end to a euphoric stock market rally? You can decide.

REALISTIC EXPECTATIONS

Was it a cake walk after the breadth thrust round trip that was triggered on August 23, 2016? No, reminding us that even under a longer-term bullish scenario, really scary periods are to be expected.

Red Days Are Common Normal Volatility.png

PREVIOUS SIGNALS ALIGN WITH SIGNALS ABOVE

The Seeking Alpha posts below provide additional support for the longer-term bullish case:


DAY BY DAY

We will continue to test the cyclical low (December 2018) in the context of a secular trend thesis in upcoming posts and videos. If the weight of the evidence begins to shift in a bearish manner, we must be willing to adjust our assessment of the probabilities.

Commenti

Posta un commento

Post popolari in questo blog

Fwd: The Looming Bank Collapse The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

After months  of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there's another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse. John Lawrence: Inside the 2008 financial crash The financial
Posta un commento
Continua a leggere

3 Reasons Why Gold Will Outperform Equities And Bonds

3 Reasons Why Gold Will Outperform Equities And Bonds https://www.forbes.com/ 3 Reasons Why Gold Will Outperform Equities And Bonds For centuries, gold has played a major role in human history and has become interwoven into the financial fabric of society. Beyond its investment following, gold has become synonymous with wealth. Historically, gold's early use cases revolved around money – a form of "medium of exchange". After the second world war however, several countries and their respective currencies, started to shift away from the gold standard and migrated towards a fiat currency system. Today, gold remains largely a "Store of Value", and due to its unique properties and large number of use cases, it has managed to distance itself from other asset classes in terms of correlation, demand / supply drivers, and investment purpose. Gold's idiosyncrasies function as a double-edged sword, as it is challenging to predict
Posta un commento
Continua a leggere

What Will Stocks Do When “Consensual Hallucination” Ends?

The phenomenon works – until it doesn't. What's astonishing is how long it works. There is a phenomenon in stock markets, in bond markets, in housing markets, in cryptocurrency markets, and in other markets where people attempt to get rich. It's when everyone is pulling in the same direction, energetically hyping everything, willfully swallowing any propaganda or outright falsehood, and not just nibbling on it, but swallowing it hook, line, and sinker, and strenuously avoiding exposure to any fundamental reality. For only one reason: to make more money. People do it because it works. Trading algos are written to replicate it, because it works. It works on the simple principle: If everyone believes stocks will go up, no matter what the current price or the current situation, or current fundamental data, then stocks will go up. They will go up because there is a lot of buying pressure because everyone believes that everyone believes that prices will go up, and so they bid up
Posta un commento
Continua a leggere