In my 58 years of stock investing, I have never seen such a blasé response to such a serious stock market situation. There does not need to be panic in the streets, but there should be clear signs of worry with smatterings of fear. After all, it’s not just stocks. Bonds are dropping as is the dollar’s purchasing power (inflation). Then, there are the growing global uncertainties including a potential worldwide recession.
I first got worried last November, moving to 100% cash reserves and writing my views in “Here Comes An Inflationary Storm Like None Before.”
Since then, it’s been a slow turn for the market, from the heady 2021 bull days to the 2022 lower highs / lower lows downtrend period. Along the way I have written about worsening conditions. Lately, I’ve discussed a potential shakeout-selloff that could produce buying opportunities. Each of the three 800 – 1,000 point down days over the past six-day period could have been catalysts, but the next day jumps, albeit smaller, seemed to offer some reassurance.
So, here we are, with the stock indexes moving deeper into bear market territory. Yet the apparent investor reaction is ho-hum.
Important: That lack of concern does not show resilience, perseverance or sophistication. So, don’t be comforted. Human nature is the one common factor across time, and Wall Street knows it.
How to measure emotions? There are two reliable indicators:
The Investors Intelligence US Advisors’ Sentiment Report. As of Tuesday, April 26, the moderate bearish reading was basically unchanged from that of the previous two weeks. In fact, the bullish reading was up a bit, as “correction” declined. Could the last three days have altered those readings? Yes, but the next item doesn’t yet show a change…
The leading media articles. Reporters are in touch with fund managers and investment advisers, so they capture investors’ emotional swings quickly. So far, though, the reporting remains straightforward without increased negativity.
The bottom line: Expect that the worst is yet to come
After the latest drops, the stock market could have another rebound of sorts – even another enticing bull trap. However, the underlying weaknesses, uncertainties and risks are ill support for a true turnabout. And that means something worse than what we’ve seen so far is likely in store, and it will be bad enough to provoke investor fear. With stocks already far down, that fear could easily lead to panic selling.
Here is Friday’s (April 29) activity for the S&P 500 stocks, courtesy of Financial Visualizations (FinViz.com).
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