Posts filed under “Sentiment”
Yesterday, we discussed why the Standard & Poor’s 500 Index has gone sideways for the past few months. The prime suspects were rich valuations, earnings crimped by falling energy prices and higher returns to be had overseas.
Today, I want to look at the Nasdaq Composite Index. It closed at 5,056.06 yesterday, surpassing its March 2000 dot-com high. It took more than 15 years to breach that earlier mark. Meanwhile, the Dow Jones Industrial Average and S&P 500 passed their pre-crisis 2007 highs almost two years ago.
The Nasdaq has been the laggard, and there are many questions about why. Does this represent the triumph of value investing over growth? Dividends over potential? Blue chips over sexiness? Or is something else going on?
The answer, in my humble opinion, lies in the nature of secular market cycles. Although we only have a century or two of data, markets seem to alternate between multidecade booms and busts. Some analysts like to describe these as “secular.” These are different from cyclical markets, which are shorter. The period from 1966 to 1982 was a secular bear market, just as the stretch from 1982 to 2000 was asecular bull market. Compare that with the 74 percent rally that followed the plunged in 1973 — that was a cyclical bull market within a secular bear market.
These are more than arbitrary definitions. Secular markets typically reflect the dominant economic and sociological themes of their eras. Consider the post-War World II period, or the inflationary malaise of the 1970s or even the roaring 1980s and 1990s. Each of these periods can be defined by way of a generational, overriding idea. These were all significant secular market cycles.
I look at three key questions when trying to identify secular markets . . .:
Continues here: How a Bubble Steals From the Future
Do Lower Gasoline Prices Boost Confidence? Aditya Aladangady and Claudia R. Sahm FEDS Notes, March 6, 2015 A gallon of gasoline currently costs one third less than it did last summer, as shown by the solid line in Figure 1. Gasoline makes up 5 percent of average family spending, so lower prices at the pump…Read More
The Gallup polling organization is in the business of taking the pulse of the American public. A new survey detects a surprising shift in perceptions. It points not just to the nation’s sour mood and disappointment with the drawn-out recovery, but also to a sense that something different is now wrong with the U.S. In…Read More
From Bank of America Merrill Lynch: The Sell Side Indicator — our measure of Wall Street’s bullishness on stocks — moved sideways in December, unchanged from November’s reading of 52.1. At the start of the year, it was 53.3. The indicator remains in “Buy” territory, as Wall Street’s bearishness is still more extreme than at…Read More
It’s the time of year when predictions are in order. Not by us, but by other people. We have spilled plenty of pixels on why forecasts are folly (see this, this, this, this and this); we won’t revisit that well-trod ground, at least not today. Instead, I wanted to discuss the rather annoying tendency of…Read More
As a fan of investor psychology, I find sentiment intriguing. Measuring it is a challenge. We can’t trust what people say because they become bullish after they buy and bearish after they sell, convincing themselves that past trades were the correct way to go. Humans are notorious liars — especially to themselves. When they are…Read More
Last week, I came across the following headline: “As music sales fall, sax player Kenny G turns to stockpicking.” My immediate reaction: Uh oh. The last thing any bull market needs is for celebrities to be featured in the financial press. As soon as that starts, it means the bull market must be near a…Read More
One of my favorite pastimes is dissecting accepted Wall Street wisdom to see if it contains any value for investors or traders. Often, upon examination, the widely held beliefs turn out to be closer to magical thinking than financial acumen. One of the more recent examples is the way some analysts use data on sentiment…Read More