If you feel a bit of whiplash – don’t fret. It’s what happens when markets rally 250 points one afternoon and then fall the same 250 points the next morning.
Alas, for what seems like years we have been fretting over what on Earth would happen when the Fed raised rates. No sooner had they done so – finally – when yes, indeed, the next headlines popped up:
“The First Done, Fears Rise Over Next Hike”
or this one:
“Fear Rate Rise? This Can Sink Your Retirement Too!”
Things in the media don’t really change – they just re-arrange the same ink, addicting readers to fear on all fronts–around every corner, in every nook.
Santa will find it tough to ge t his sleigh full of Holiday rallies fit into this place of doom.
Fear not my friends…as Peter Drucker told us,
“The Future Has Already Happened….”
Back to that rate increase…
How many gallons of ink were spilled on the fears over a rate increase? How many miles of headlines poured over our senses? How much space was wasted on this garbage?
For sure, the rate increase was in fact put in place.
And after all that preparation – what happened?
Markets went up about 250 points on Wednesday afternoon, seemingly excited over the increase finally coming together. Then, in a cruel hoax indeed, the very next session, the market took back that same 250 points.
As can be expected, the headlines gave us reasons for it all – after it happened of course.
To be more specific, the closing price of the SPY is noted below – first for the day before the hike, the second for the day after the hike:
Call Me a Nut If You Like
But that sort of puts the entire year in perspective.
The media spent all year telling the world the myriad of events which would surely unfold as the Fed liftoff took place.
And in the end – nothing really happened at all. We are still, even at this writing, within 2% of where we started the year.
The Good News?
The world is not going to end because rates increased. It will not end on the next increase either – or the one after that. Power is being generated in our economy as the next generation slowly takes hold.
As we all watch the last of the year unfold and spend time with friends and loved ones for the Holidays, we have much to be grateful for – and even more to look forward to next year. There will be dicey spots. For that we can be certain.
But history shows us that very frustrating periods like we have witnessed over the last 16 months – going almost nowhere unless you owned FANG – are often followed by periods which catch back up in many places.
Think of a spring being once again pressed down – and watch fear rise…
Speaking of Fear
The latest sentiment numbers are out – and as expected, the deep-seeded crowd fear remains evident. Here is the latest from AAII to close out the week:
Bearish sentiment spiked, landing above its historical average for just the third time in 14 weeks.
Neutral sentiment remains above its historical average for the 14th week in a row.
The percentage of individual investors expressing pessimism about the short-term direction of stock prices jumped to nearly a three-month high in the latest AAII Sentiment Survey. Optimism, conversely, fell to a five-month low. Neutral sentiment also fell.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.6 percentage points to 23.9%. Optimism was last lower on July 29, 2015 (21.1%).
As a special note, recall that in March of 2009, 11,000 DOW points ago, the bullish sentiment was just a mere 4 percentage points lower at 19%.
This is the 39th out of the past 41 weeks with a bullish sentiment reading below its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 4.9 percentage points to 36.8%. This is a two-month low. Even with the drop, neutral sentiment is above its historical average of 31.0% for the 14th consecutive week and the 48th week this year.
During the past two weeks, bearish sentiment has risen by a cumulative 18.2 percentage points, while neutral sentiment has fallen by a cumulative 12.6 percentage points. Bullish sentiment also has fallen, dropping by a cumulative 5.6 percentage points. Optimism is at an unusually l ow level (more than one standard deviation below its historical average), while pessimism is near the upper end of its typical range.
The Net Result?
Remember this: investors who tend to earn the most over lengthy periods of time understand some of the uglier truths in building wealth. We get paid to take the tough stuff. We get paid to deal with the sometimes lengthy periods of frustration. We get paid to go through it. We get paid to stand against the wind – even when it feels ugly.