Markets have recovered impressively from the early March lows set off by Russia's invasion of Ukraine, but they are still suffering from a spell of depression.
According to the American Association of Individual Investors, the percentage of individual investors who consider themselves bullish has averaged just 23.9 percent over the last ten weeks (AAII). This is the lowest average level of bullishness since the June 2016 Brexit referendum, according to Truist co-chief investment officer Keith Lerner, and one of the least optimistic readings since the survey's inception in 1987.
So, what does this level of depression signify for the stock market in the months ahead historically? It's a rally, of course!
Lerner points out that historically, these low survey levels have been followed by consistent and strong returns for the S&P 500 over a six- to 12-month period.
Only in the investment world does terrible equal good (maybe it does in other places, who knows).
"Part of the market's resiliency can be ascribed to low investor expectations, suggesting that markets are already anticipating and discounting some of the recognized risks. Markets have also accepted the Fed's recent policy move in stride, as investors had already priced in a rate hike. The first rate hike has a history of causing volatility, but it does not usually signal the end of a bull market "Lerner discusses the market's recent display of strength.
However, given the current context, all of this strange optimism could go in an instant.
This week, President Biden will meet with European leaders to discuss the Russia-Ukraine conflict. Any headline from that occurrence might easily send the markets crashing. Nike's earnings will be released after the market closes today; as a bellwether, a terrible conference call and forecast will not be warmly received by investors (chatter on the Street is bracing for a Nike warning). Following their meeting last week, Fed members are likely to speak with the media.
But, barring a major news event, Defiance ETF co-founder Sylvia Jablonski may best capture the market mindset that will likely persist in the near future.
On Yahoo Finance Live, Jablonski remarked, "Investors are starting to sense a tradeable bottom."
Good luck with your trading!
Ends and oddities
After more than two years of the pandemic, "Things" are returning to New York City, and it's wonderful to see. "Things" in my field frequently refer to thought-provoking, in-person events/meetings with fascinating people. There are two events that have recently appeared on my calendar. After attending an investor day in the city, I met with Diageo CEO Ivan Menezes and his colleagues. We were shown through the company's headquarters (which, yes, has a wraparound bar) to see what the makers of Don Julio tequila, Guinness beer, and other well-known brands are up to. I was quite amazed (as were I believe others in the audience). The brand is branching out into ultra-premium liquors (think $350 uncommon tequila that sells out in a matter of seconds) and fine wines.Why Diageo has done well financially in recent quarters despite the epidemic still affecting bars was brought to life here. The stock appears to be too cheap at 21 times forward earnings based on what I saw and conversations I had (and given this could be a strong summer of going out). The first paper bottle for Johnnie Walker is shown below for your viewing pleasure.
Another event I attended was the CEO Summit, which was hosted by ServiceNow CEO Bill McDermott, who is known for his charisma. I won't go into too much detail about this event other than to say that I spoke with a number of software bankers. My general feeling is that (1) the sell-offs in high multiple software stocks like Snowflake (and others) are nearing exhaustion (useful chart from Jefferies' Brent Thill below to put a finer point on this + see the Thoma Bravo for Anaplan $10.7 billion deal today); and (2) keep an eye on Amazon Web Services' performance, as its cloud dominance is being eroded, perhaps more than people think (Microsoft was called out consistently).
Influencers have their say: For a long time, former Treasury Secretary Larry Summers has been warning about inflation. "In the end, we're going to need 4-5 percent interest rates, which they don't even consider possible." They've realized they've fallen behind the times. Summers told Bloomberg, "They still have a long way to go."
On another prospective suspension of student loan payments, SoFi CEO Anthony Noto came out swinging. In a blog post, Noto stated, "The Biden administration continues to waver on the question of federal student loan repayment and prospective debt forgiveness." Noto is known for his calm demeanor, so this post caught me off guard — but it makes sense given SoFi's involvement in student loans.
The recession debate rages on. On the chances of a recession, former senior Obama administration economist Jason Furman told Insider, "I'm higher, but not much higher than 20%."
The search for Russian yachts is still ongoing. "Because oligarchs help Putin stay in power, they must bear the brunt of Putin's war. That's why we're seeking their yachts, residences, and any other assets they have stashed away. That's why we need to fill this void in our sanctions bucket "Senator Elizabeth Warren (D-Massachusetts) remarked in a new tweet.
GameStop: Suffice it to say, our review of GameStop's dreadful quarter on Yahoo Finance Live was met with a barrage of bizarre tweets from true believers in the brand. The majority of their tweets aren't allowed to be placed here. But I'd want to toss another analytical bone to this fervent group. Around the world, GameStop has 4,573 retail locations. Despite its size, the corporation only spent $62 million on capital expenditures in 2021. (think money spent on new fixtures, lights, rugs, basic upkeep, etc.).
To give you an idea of how small that is, consider how much a couple other major retailers spent on capital expenditures in 2021:
Best Buy has 1,144 locations and a $737 million revenue.
Target has 1,926 locations and a $3.5 billion revenue.
Dollar Tree has 16,077 locations with $1 items.
Dollar General has 18,170 locations and a market capitalization of $1.1 billion.