The big houses on the Street are all chiming in with thoughts on the latest chamber of doom: the upcoming “summer of discontent”. Seems there is a growing “perception” that this summer will be somehow different than every other summer. BAML has called it the “summer of shock”. Is there no end to this need for attention grabbing headlines?
I have lived through 34 of them in this business. Most of them had a dreaded “summer swoon” – and most of those ended up being the low point of the year. I am still amazed the press has not picked up on that tiny little artifact.
It’s easy to forget this in all the chatter – but elephants don’t bite you on the ass. The stuff that is really scary hits you when you are in the middle of traffic trying to read a text on a Tuesday afternoon.
Besides, while harping on the “summer of shock”, BAML notes the consistent selling in equities by the crowd. That meshes with the latest sentiment surveys – after a brief and perfectly normal churn during earnings season. Net-net, it is clear: the investor audience dislikes equities with a passion, still loves bonds and has been selling in May. They are prepared for the terrible things that await us.
That’s great news by the way given the horrible record these repetitive actions have created:
The last two charts are the same – the second one with a line added by hand (excuse my art). The purple line is added to show us the rarity of the current bullish sentiment readings.
Call it what you will–excuse it away if you must. In the end, readings even remotely close have ended well a year or two later for investors willing to look beyond the doom.
Speaking Of Doom
Note the character shift of the last 48 hours. So much ink and emotion has been wasted on the next rate hike – or any rate hike for that matter. It is vital we help clients understand the subtle shifts unfolding.
We have long noted a “raise and get it over with already” feeling on the topic. I am also on record for having stated the world will not end after a few rate hikes. Indeed, it will more likely make things a bit better for the US. Once the masses accept the idea that our economy CAN accommodate higher rates, then some of that $8.3 trillion dollars sitting in banks will unlock itself and the fear of the future will subside.
This is all unfolding even as the sector of our economy which triggered the last Apocalypse continues to improve….housing of course, topping estimates again:
Back to the Character Shift:
The last chart above is a 15-minute bar snapshot chart of the SPY with the Fed minutes release marked at (1) about 40 hours ago. The HFT guys drove a brief push down only to see a nearly unchanged close.
The working public went home evening before last, read all the horrible news of the summer of doom now with a slim chance of an apocalyptic 25-basis-point rate hike somewhere on the horizon – and promptly called their broker yesterday morning – to sell (2).
Then, the market spent the rest of the time moving right back to where we started, just prior to the minutes being released.
I call that an interesting breadcrumb. A character shift indeed. Six months ago, the same news did not elicit the same result. I would go further, suggesting we take that into the larger picture. Doing so likely shows us the market is slowly beginning to accept that interest rate hikes won’t crater society.
Now that, my friends, would be a shift.
Pray for a summer swoon…and be prepared to use it for long-term benefit. A very surprising wave of strength in the US economy is percolating in the shadows.
Let’s patiently stay focused on long-term demographics, while too many others get lost in the near-term economic fears and angst.