Is It Halloween Yet?

By David B. Armstrong, CFA | Sep 22, 2014 | Weekly Market Commentary

The Secret Service is on the ropes after some dope named Omar Gonzalez jumped the fence of the White House, sprinted across the lawn and entered the building before finally being stopped.  This is embarrassing for several reasons but mostly because it was a wasted opportunity to wear a pirate costume, carry a big pumpkin candy bucket and yell “Trick or Treat” at the front door.  I mean, it would have been early but if you are gonna go down, at least have a good story to tell.  Dumb ass.

Last week, the indices we follow all performed in line with their size – best to worst from biggest to smallest.  The Dow jumped to a record close last week by adding about 292 points (or about 1.7%) to close Friday at 17,280.  The S&P 500 rose about 1.3% to close at 2010 but the Russell 2000, a measure of small-cap stocks, was down -1.18%.

Here are the weekly charts for the week.

The Length of the Bull Market and Perceptions           

Gallup published an article back in August that had some pretty shocking (at least to me, maybe that’s the problem) stats about investors’ perceptions of the current state of the market along with their awareness of the past.  According to a survey conducted by Wells Fargo from late June into July of this year, 41% of those polled would invest extra money into the market while 36% would keep it in cash and 20% would buy a CD (read: cash).  What’s so shocking to me is my assumption that in mid-2009, or even well into 2010, those numbers would have probably been 0% into the market, 100% cash and 0% into CDs. So even today, about 56% of those surveyed are still not inclined to invest.

Oh, and as for historical PERCEPTION?  That’s even worse.  According to the same study, investors were asked how much they think the S&P 500 was up in 2013. Now, I know you, O Faithful Reader of the globally famous MWM Off the Wall Blog, are very aware of the return on the S&P 500 for 2013…(ahem – a little over 32% on a total return basis).  Brace yourself for this…

21% of the people surveyed thought the market was FLAT in 2013.

FLAT!

Ok – what about the rest you ask?  Well…37% of those surveyed think that stocks only increased 10% for 2013.

I feel awful for these people.  They have probably missed a bull market run on the S&P 500 (using March 9, 2009 as the bottom) that is now over 2020 days old.  It’s the 4^th longest in post WWII history and a +200% return. Look at the “Chart of the Week” from JP Morgan Asset Management.

This is a very sad chart.  What it’s telling you is that retail investors (unless you are the equivalent of the Chief Investment Officer at CALPERS, you are probably a retail investor) have been pulling money OUT of equities during this Bull Market run.

Here’s what I imagine a mental conversation has sounded like in the head of any retail investor represented in the JP Morgan chart:

2008 – “This thing is going to ZERO.” (S&P 500 down around -37%)

2009 – “This is a Dead Cat Bounce.” (S&P 500 up over 26%)

2010 – “Between Greece and the Flash Crash there is no way this is a good time to get invested.” (S&P 500 up over 15%)

2011 – “Between the Arab Spring and the U.S. downgrade, we are gonna see another 2008.” (S&P 500 up about 2%)

2012 – “Look, we’ve got the London Whale, the Fiscal Cliff and housing is going up again…no way this is a good time to get in…I’m waiting for a pullback.” (S&P 500 up over 15%)

2013 – “I’m going all in in 2014.” (S&P 500 up over 32%)

So You Are Still Worried?

Ari Wald, an analyst at Oppenheimer Asset Management, published the chart below. It says that historically, when the S&P 500 is trading above its 200-day moving average in an upward trend, the average return over the next 52 weeks is about 11% vs 4.1% when it is below the moving average (which it is not right now).  No guarantee of anything – but it’s a data point in a sea of talking head opinion on TV and print.

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