That was the cover of last Saturday's Barron's. The featured article included the following:
"We’re not saying the stock market will never suffer serious declines. It always has and always will. That’s the way capitalism works....Maybe the next crash will be caused by unrest in the Middle East, an Ebola pandemic, further slowing in China’s economy, some unforeseen fallout from the collapse in oil prices, or a bellicose maneuver by Russia’s Vladimir Putin. But right now, to us at least, it doesn’t look like Internet stocks will be the culprit."
While the cover is indeed jarring at first sight, the actual story lays out a compelling analysis of the fundamental differences between today's market and the euphoria filled days leading up to the Dot Com bubble bursting.
When it comes to stock market predictions, magazine and newspaper covers have served as an amazing contrary indicator over the years. Some outlets have been consistently and embarrassingly wrong with the timing of their predictions. We had a laugh in the office yesterday as we compared their terrible records to two of our close friends with historically bad sports betting resumes. We eventually had them team up to form the "Mush Brothers" with the premise being to bet the exact opposite of their weekly game picks (for entertainment purposes only of course!). The results were both hilarious and wildly profitable for those that faded their ideas.
So while we usually cringe when we see comments like "this time it's different" or something similar, Barron's did a proper job of acknowledging that, as sure as the sun rises, the market will eventually face a period of extreme stress and drawdown. That's simply a given. We just don't know the cause of it yet. Could it be the ongoing crash in oil? Possibly. There are a ton of variables at play here and the market finally appears to be appreciating them. The whippy stock market action of the last 3 days proves as much.
Looking at real-time data, investors do not appear to be concerned about a potential fall in stocks. According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment increased from 42.68% up to 45.02%. According to Bespoke, this is the 10th straight week that bullish sentiment has been above its bull market average of 38.3%, which is the longest streak since early 2013.
We would anticipate investors remaining in a cheery mood through year-end as history suggests the "Santa" rally should kick into full gear next week. Here's a look at S&P performance during the last 2 weeks of the year since 1990. The results have a decidedly bullish bias. (Chart created by market technician Chad Gassaway).
Let's see what happens...
