Market Pulse: Taking the opposite view
March 19, 2014
"The obvious is obviously wrong," so said Joe Granville, the late stock market technician. Today we hear that it's "obvious" interest rates will rise and it's "obvious" that stocks can only continue higher.
Beginning last summer, Wall Street said we should underweight or avoid utility stocks, which obviously would underperform. If those trends are truly so obvious, expect just the opposite result.
But in truth, those are not obvious at all. Rates are falling again, utility stocks have been among the best performers and unforeseen developments here and abroad could derail the bull market. Few things are ever obvious.
A couple weeks ago most every analyst appearing on CNBC was bullish. That's why I wrote the "Expect a pullback" article. The market did fall last week and financial channels quickly paraded the doomsayer analysts … the ones predicted Dow 6000 and such. Fear returned to the market. Was that enough fear? Maybe not.
From a longer-term view, it's still a bull market. Growth in China is slowing and that has put a damper on investors' enthusiasm. So has the situation in Ukraine. Not for long.
U.S. stocks are the best place to be and geopolitical events will not end the bull market. Bull markets end amid euphoria and the certainty that, obviously, stocks must rise.
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We are not there yet. It's still a TINA market — There Is No Alternative to stocks.
The late John Templeton put it this way for investors: If you go to ten doctors and they all say your appendix needs to go, you'd better head to the operating room straightaway.
But if all analysts covering a stock say it is a buy so obviously it will rise, ignore them. In all likelihood just the opposite will happen.
Sir John was right. The price of the stock all analysts recommend already reflects their optimism.
Who is left to convince? Any change can only be from optimism to pessimism. In short, the investment business is like no other. Granville was right.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.