I recently read a survey of feedback from the public regarding what they thought of the stock market currently. Despite the market being close to all-time highs, it seems that people are skeptical of this bull market, perhaps the bitter memories of 2008 are still to close for comfort.
In short, I see evidence everywhere today of indecision in markets, a ‘wait and see’ attitude is prevalent.
So today let’s try to make sense of this, and look at the evidence for what lays ahead? Will this market boom or bust…?
The bond market (government bonds, where governments invite investors to lend money to the government) is a larger and supposedly more sophisticated market than the stock market, so I like to use this as a compass at times like this.
The chart of TLT below:
It seems TLT has stopped falling. It formed a triple bottom, leveled off, and this year has broken up above the moving average (curvy blue line). And this in the face of The Fed buying less of the government bonds! So investors seem to be buying government bonds for safety, or at least to keep some powder dry.
Next exhibit, the retail sector:
Main St. is looking healthier, although retail has leveled off for now. The big question is one you could answer yourself: is the consumer closing their wallets or was it just the bad weather? Answer this question correctly and bet up or down on a stock like Amazon (in fact, did the bad weather especially help Amazon as shoppers had to order online instead of driving to a mall?? You tell me…)
So what’s the bullish case? As Adam Woods said on this site this week, the US economy has never been so large, and valuations are not unreasonable. The Fed is still pumping money into the market, despite them slowing it down a little. That’s a good fundamental case to make.
And then there’s the technical case. Here’s the latest long term chart of the S+P:
That is a definite uptrend. A technical analyst, after seeing this chart, wouldn’t dream of betting against this market. But clearly, many people ignore the charts…
The psychological case is also compelling for the bullish camp. Bull markets don’t end with a whimper, they end with a bang. That’s to say, bull markets don’t end with the herd being skeptical and cautious, they end when the herd is euphoric. They end when the last bear has been hunted down and shot. This has been and is a VERY powerful bull market, so it’s reasonable to expect to see an equally powerful conclusion to it, and this isn’t it.
It’s the very fact that we’re seeing hesitation and skepticism out there that makes me more inclined to believe in this bull market. The bull continues to do a great job of taking as few people along for the ride as possible.