Wednesday, June 29, 2016

Rising Pessimism A Byproduct of Headlines and Emotion Driven Investing

The majority, a day late and dollar short in terms of timing, will only recognize a bull market after trading accounts have been drained by bearish bets.  As Insight subscribers already know, US stocks as well as many other markets will flip rather unexpectedly when the majority turns extremely pessimistic (see Review of Sentiment); this is happening now. Headlines such as "picking up dimes in front of a freight train" are turning the majority bearish, pessimistic, and preparing them to assume their historical role as the bagholders of trend transitions. Smart money only has to recognize, wait, and fade the extreme pessimism of the majority.

Be wary of shock and awe bearish calls until at least the message of the market confirms it (see S&P 500 Chart).

Headline: Buying stocks like 'picking up dimes in front of a freight train,' manager says

Holding all of the stocks in the S&P 500 is expected to grant investors a greater return, purely in terms of yield, than holding the 10-year Treasury bond, a somewhat unusual condition that has tended to coincide with impressive returns for equities.

Current analyst expectations are for the S&P 500 stocks to collectively return 2.28 percent in dividends over the next year, somewhat higher than the 2.1 percent yield seen over the past year. This compares to a 10-year yield of 1.47 percent, which is considerably lower than it was before the U.K. voted to leave the European Union.



Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.