On Monday, my wife waited on the special mobile queue to score 4 tickets for Taylor Swift’s concert in Massachusetts this August. She finally got through many hours later and was elated for us to pay more than the cost of my first car for each of the four tickets! But, our 5 & 7 year old daughters will never forget it, so why not? And, we’ll catch a Yankees v. Red Socks game at Fenway Park – so everyone wins (even though I’m a Mets fan)…
How does this tie in with our weekly note on stock market sentiment? Last week, we laid out the case for buying the pessimism (equities sentiment) on Thursday morning (before the Phase 1 China deal was announced on Friday). You can review last week’s note here:
Frank & Jerome (The Chairmen) agree: The Best is Yet to Come (AAII Sentiment Results)
Sentiment levels were washed out (with bullish percent down to 20.31%), multiple other indicators confirmed the extreme – and forward earnings estimates were/are still strong (+10.6% EPS growth for 2020). This week, the AAII sentiment survey is confirming that market participants are listening to what Taylor Swift has been telling them to do for years:
The haters gonna hate, hate, hate, hate, hate
Baby, I’m just gonna shake, shake, shake, shake, shake
I shake it off, I shake it off…
Listen to Taylor “Shake it Off” Here
Managers are finally starting to shake off all of the noise about Impeachment, China, Brexit, the Fed, etc. and beginning to focus on Q3 Earnings – which are coming in better than expected. Bullish Sentiment rose to 33.62% this week while the pessimism thawed and Bearish Sentiment dropped to 31.05%. See the table and chart below:
The improvement in sentiment this week is confirmed by CNN’s Fear and Greed index – which has jumped 17 points in the past week (from 30 to 47). You can learn how this indicator is calculated and how it works here: (Video Explanation)
In last week’s article above, we touched on the National Association of Active Investment Managers (NAAIM) Equity Exposure Index (Video Explanation Here) which showed how Active Managers were underweight equities (below 57%). We made the case that as the market creeped back up to new highs – they would have to lever-up to catch their benchmarks – setting the stage for a possible “Melt-Up” into year-end. They remain underweight as of 10/14 (per below) which will add fuel to the fire when we make new highs and the “end of year chase” begins.
This offsides positioning (overweight cash, underweight equities) was confirmed by the Bank of America Merrill Lynch Global Fund Managers Survey this week. We posted an extensive note on the implications (which sectors might benefit) here on Tuesday:
As evidenced in the sentiment data and positioning, this market has room to run in coming months. Billionaire Hedge Fund Manager Lee Cooperman frequently quotes Legendary money manager – John Templeton – with this classic mantra, “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”
The second part of the quote by Templeton was, “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Last week’s sentiment survey result – with Bullish Percent at an extreme of only 20.37% – was the point of max pessimism in this recent period. We have plenty of space until we hit maximum optimism (> 45%+ bullish percent on AAII and 80%+ on CNN Fear & Greed)- and potentially more than that until we reach euphoria…
So follow along with Taylor, she knows what’s what for year-end:
I keep cruising, can’t stop, won’t stop grooving
It’s like I got this music in my mind saying it’s gonna be alright…
