Where are we now? Markets often follow recognisable patterns, providing a map for those who can interpret them correctly. And the psychology of the investing crowd is sometimes a useful tell-tale.
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Source: Canaccord Genuity
This market recovery, since October 2022 (S&P 500 up 20%), has been described as “the most hated bull market ever” because many missed out on participating in it, and do not believe the recovery will be sustained. Many argue that we have a recession ahead of us, corporate earnings are vulnerable, central banks are not done lifting rates, inflation is becoming entrenched, and the market rally is confined to a small group of Big Tech names. And yet the VIX volatility index keeps on falling, and stocks keep on rising.
We are not going to solve this conundrum here… time will tell who is right and who is wrong, and winners will be rewarded with high returns.
If there is anything consistent this year, it has been the pessimism. Any examination of investor sentiment will show that negative sentiment spiked to an extreme last October, just before the low. That was the most bearish most sentiment surveys had been since March 2009 — the low after the Global Financial Crisis. Investor sentiment remains very downbeat, both in the US and here in Australia. Generally, bull markets can only take off once all hope is lost, and every last speculative holding or over-geared asset has been sold in despondency. Who knows where the low is? It’s just possible that it was last October. (For the record, I am positive markets for the rest of this year and expect we will go higher.)
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