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 In The Lonely Bull

Investor sentiment so negative, you could cut it with a knife! What seemed to bring this about was the decidedly downbeat comments from some CEOs at the business roundtable in Washington, D.C. earlier this week. Many seemed to coalesce around the view that a recession next year was inevitable. Although few could point to any current evidence for this forecast, they expressed the fear that higher interest rates would prompt the downturn.

So often, in the stock market, when consensus develops around one point of view, most have already acted upon it. That is why a contrary view is then so often the one to take. It doesn’t take much of a catalyst to get a swarm to the opposing view. At that point, too many investors are on the wrong side of the market. Sometimes a catalyst is not needed. Bargain hunters, looking for opportunity, begin to pounce and that starts a new trend.

Whether we have a recession next year or not is not the right question. It is more important to know how much of that view has already been built into current prices. Today, at least, a mild downturn is already expected. What has not been factored in is recovery. Remember, market recoveries start six months to one year in advance of the economy. Another metric to consider is that bear markets historically last 6 to 18 months. This one started last November. We are already more than halfway through the average duration. Now is the time to prepare for the new bull market. Stay steady my friends.

The Lonely Bull

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