“Wall Street looks to leave behind the half-year bear scare”

The above is a headline from an article and video a segment from CNBC’s “Trading Nation.” (3/18/19) The video is a three-way discussion with moderator Mike Santoli, Michael Bapis (Fios Advisors at Rockefeller Capital Management) and Craig Johnson (Piper Jaffray).

$64 question … Where do we go from here?

Where do we go from here now that we have reached the 6 month anniversary of the beginning of a near-bear market that culminated in the 2018 Christmas Eve massacre? You may remember that many of the wise heads in media/ pundit land said the huge bounce at the end of the year was a flash-in-the-pan. ‘Fade the bounce’ was the cry from many. Well, here we are, up 20% from that low and only 4% from the all-time-high of the S&P 500. Should we still be fading?

Our two experts are obviously on opposite sides of the question. Johnson is in the ‘we’ve come a long way camp.’ He sees the market not doing very much the rest of this year and raises the specter of seasonality (the dreaded sell-in-May-and-go-away construct). Meanwhile, Mr. Bapis is more sanguine. He sees the market as having more room to run. I’m in the Bapis camp.

In a backhanded (somewhat confusing) way the rest of Santoli’s article makes a strong case for an UP market

It is backhanded because Santoli makes some really bush league comments in the early going:

“Hard to explain comeback”

“There isn’t a catchy or fully satisfying explanation for why stocks have reclaimed so much lost territory so quickly.”

Are you kidding me? “In late December the Fed Chairman Powell (flanked by predecessors Bernanke and Yellen), totally softened his hawkish position. The Fed is back to a go-slow, data-dependent stance. Rates on the 10-year Tsy. are right where they were 4 years ago. Fed policy was a huge worry … now it appears off the table. Earnings season was fine. Oil prices, whose weakness for many was a sign of economic weakness, have rallied on OPEC production cuts (the weakness was and continues a result of oversupply). The economy continues to grow, albeit at a slower rate (absent the shock stimulant of the tax cut) … no recession. Brexit appears to be something that will not darken our door any time in the near future. The likelihood of a trade war also appears to have diminished considerably.

It is not hard to explain this comeback. All the hot button issues that set the market on end in October are way back on the back burner.

Now, based on the more balanced tone of this article from Mr. Santoli and the fine folks at CNBC (who did their level best to fuel the panic leading up to the October-December swoon), we seem to be getting a reversion to their mean message — never entirely optimistic (except at major secular tops) and always cautious.

“Investors still reluctant”

“It’s wrong to say that the broad investing public has fought this rally outright, but it’s fair to observe the crowd has been late and grudging in accepting it. Sentiment surveys and institutional-investor positioning do not reflect the optimism one would expect after a near-ceaseless 20 percent rally. It’s as if the persistence of the rally itself keeps generating concerns that the market has run ahead of itself, which continually rebuilds a wall of worry for the indexes to climb.”

I am  not sure what “crowd” Santoli is referring to, especially when you look at the work of David Templeton, CFA at Horan Capital Advisors. The chart provided in the link below gives a stunning view of what appears to be a continuing avoidance of equity risk in favor of ‘safer’ bond alternatives.

Kudos on this find to Jeff Miller and his must-read weekly piece, “Weighing The Week Ahead.”

Investors Have Missed Out On The Equity Rally (The charts herein are worth your attention)

“From 2014 to mid-2015, investors seemed to have a favorable view on stocks if one bases the observation on ETF and mutual fund flows. As the below chart shows, the increase in S&P 500 Index until mid-2015 coincided with positive flows into domestic equity focused mutual funds and ETF’s. Beginning in mid 2015 though, investor flows turned negative (maroon line.) During late 2016 and early 2017 the cumulative maroon line became less negative indicating positive flows into domestic equities, but the sharp rally from 2017 to the market’s peak at the end of the third quarter of 2018 was not supported by positive domestic equity flows. In fact, domestic equity flows have been negative to the tune of -$1.5 trillion over this five plus year period.”

Mike Santoli

I will agree with one thing that Santoli says, 'Wall of Worry' continues to be rebuilt. This is a major positive for the market. Secular bull markets normally do not end without an overall embrace ) a speculative blow-off) of equities. We had nothing resembling that since the March 6, 2009 Secular Bear Market Bottom

I guess as these revelations come around to Santoli it is safe to say that it is better late than never. Again, we’re only up 20% from the December low.

Whats' your take?