There’s an outdated joke a couple of hypochondriac who is continually complaining to his physician about his many quite a few, mysterious illnesses. The Doc runs a full battery of assessments, and delivers the unhealthy information to the affected person:

“Sadly, every thing is okay…”

And that appears to be the identical means lots of at this time’s glass half-empty buyers are digesting details about the markets. They’re looking for out a catastrophic, weeks left-to-live prognosis for what – a minimum of thus far – has been an peculiar quantity of market tumult.

Is it truthful to name at this time’s buyers hypochondriacs? Properly, given their near-hysterical ranges of sentiment – worse than the 1987 crash, the dotcom implosion, 9/11, and the GFC – I don’t imagine that’s an unfair comparability.

Contemplate:

– Unemployment at 3.4% is at 50-year lows;

– Pandemic induced Inflation appears to have peaked a couple of yr in the past;

– Earnings proceed to return in at close to document ranges;

– Trillions in fiscal stimulus are nonetheless stimulating the economic system;

– Shopper spending close to recoird excessive ranges;

– The foremost cash middle banks are wholesome;

– The FOMC has knowledgeable us that they’re hitting pause on future price hikes.

What in regards to the negatives?  

– Regional banks proceed to lose belongings;

– Companies inflation stays sticky;

– 2 extra small banks blew up over the weekend;

– Concetrated Markets led by a small variety of massive cap tech names;

– Market contributors predict a recession;

– Russia’s warfare in Ukraine continues to pull on;

– Debt ceiling brinksmanship continues to threaten stability;

– Markets are primarily flat over the previous 2 years.

Is the glass empty or half full?

Here’s a fast psychological train to assist you to function with out your hindsight bias getting in the way in which:

On the finish of 2022, an all-knowing market deity visits to tell you that nearly midway by the yr, 1) Charges can be appreciably greater; 2) Three of the largest financial institution failures in U.S. historical past will happen; 3) The U.S. can be on the verge of defaulting on its debt; 4) A number of high-flying shares will disappoint on earnings and see a considerable decline in value.

Given all that, is your fairness stance bullish or bearish on January 1?

If you happen to say bullish, get the hearth extinguisher, as a result of your pants are probably in flames. As of this writing, the S&P 500 is up 7.73% YTD, whereas the Nasdaq 100 is up 21.2% over the identical time interval. That’s damned good given the parade of horrible laid out above. I don’t ascribe to the Panglossian view that shares all the time go up over the long term and subsequently you must ignore any and all issues, together with those above. As I’m keen on stating, sooner or later this rally will finish, the market cycle will flip and the subsequent actually detrimental period will start.

However one thing is all the time breaking, and there are all the time issues to fret about, because it appears that there’s all the time some situation on the sting of catastrophe. Even excellent news may be problematic: When every thing goes nice, stability can beget complacency, extra hypothesis, and ultimately, instability.

I think it’s an uncommon mixture of modern-era elements — social media, partisanship, and even frustration with the accelerating tempo of change– which are what is usually driving this detrimental sentiment. Numerous folks say they’re detrimental on equities, and but equities proceed to do fairly effectively regardless of — or is it due to — the entire unhealthy information.

Maybe too many buyers are specializing in the fallacious query: As a substitute of asking your self “What’s the unhealthy information?” it’s extra helpful to ask “How a lot of the unhealthy information is already mirrored in market costs?”

As we now have identified through the years, there are all the time causes to promote shares. The issue is that more often than not, these are unhealthy causes…

Supply: Irrelevant Investor

Beforehand:
One-Sided Markets (September 29, 2021)

Is Partisanship Driving Shopper Sentiment? (August 9, 2022)

Sentiment LOL (Might 17, 2022)