Unclear Data Mostly Bearish, but Bullish Later - Weekly Blog # 870

 

Mike Lipper’s Monday Morning Musings

 

Unclear Data Mostly Bearish, but Bullish Later

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

 

 

First Half

Marcus Ashworth is one of the best market analysts who writes daily for Bloomberg.  In a recent piece he focused on volatility, with the following introduction:

The election of Donald Trump introduces an 

unwelcome capriciousness to US policy making,

with everything from trade to regulation to crypto-

currencies looking decidedly less predictable. And 

while the US consumer continues to defy expectation

by keeping the world’s largest economy rolling

along just fine, the rest of the world is a lot less

robust. Our key message for 2025: Buckle up, it’s

“gonna” be a roller coaster.

 

It is my own view that even Mr. Trump does not have a complete view of what is going to happen. As shown in the recent election of the House Speaker, members of both the Senate and House act differently than the majority of their party and will be paid off in some known or unknown way. Furthermore, going back to early American history, foreign powers will express their will and influence on our results and actions.

 

Chartists’ Views

We have heard many times that history does not repeat itself but often rhymes. One of the easiest ways to record the rhymes is through charts, which are often right as to future price moves. They have learned that future reversals can frequently be successfully predicted. The standard pattern for trend reversals is a “head and shoulders silhouette”. The three or more peaks with the center one being the highest shows each of the peaks declining to a common neckline. Currently, the two shoulders have hit their necklines and bounced up a bit. Most important to me, this describes the S&P 500 price action. If it breaks the neckline that indicates the likely chance of a significant decline.

 

Historically, significant declines often follow substantial increases, like those we have experienced. Declines often occur after valuations have been stretched like a rubber band. The measure I find helpful is the ratio of market value to book value. Currently, the S&P 500 ratio is 5.37x vs 4.58x a year ago. This seems like quite a stretch.

 

AAII

Many professional analysts look down on the retail market despite a reasonably good long-term track record. Like many others, it tends to be wrong at turning points. The AAII sample survey asks their participants if they are bullish or bearish for the next 6 months. I find the percentage difference between the bulls and bears of interest. The spread for last week was only 1.9% vs. 3.7% the week before. In each case the bulls were on top. My reading is that these investors are usually very intense in their views. The view they share with many professionals is that they are waiting, but don’t know what they are waiting for!

 

Other Straws in the Wind

Many of these relationships could change significantly:

• The bottom third of credit card holders are tapped out.
• The five best-selling car brands in the US are foreign.
• Only 44% of weekly prices tracked by the WSJ were up in the latest week.        

 

Most Funds Don’t Perform

There are 103 peer groups that I look at to see if they on average beat the S&P 500 Index fund. Below are the results showing the number of Equity and Equity Related Fund Groups that beat the average S&P 500 Index Fund for 1, 5, and 10 years.

 1-Year     5-Years      10-Years

   8            4               3

   

Just like following Professional Golfers, the ordinary weekend player can learn useful techniques, avoid many injuries, and enjoy investing.

 

Beware of Simplistic Data

It is popular to compare mutual fund gross sales to ETF sales, taking the difference as an indication of popularity. The problem is fund redemptions are built-in the day a fund is purchased. Redemptions for many holders is the completion of a planned period or condition, regardless of performance. The average age of a mutual fund owner is senior to when they initially purchased the fund. Many redemptions are also mandated by retirement vehicles, such as required mandated distributions.

 

ETFs are like buying individual securities. The buyer is often considerably younger and considers it a form of trading. To net these actions is like purchasing a car for dating when you need a car to get to work or to transport your family.

 

Question: Are there any topics you would like me to explore, or correct?    

 

 

 

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