Stock Market Analysts And Participants Have Turned “Chicken Little”
I am overwhelmed of late with the number of articles warning of an impending stock market crash. Yes, the sky seems to be falling. And, like you, I receive dozens of emails daily about how one should protect themselves for the impending stock market crash. In fact, this will likely be the most anticipated stock market crash in market history.
Why Are You So Bearish?
Have you ever wondered why so many articles are bearish of the stock market? Ever wonder why you gravitate to those articles more than the bullish ones? Ever wonder why you always feel the bearish articles are correct and the bullish ones are simply wrong?
People love to write and read about bearishness. Whether it is about how bad the economy is, or how bad earnings are, or how bad the stock market is, people just love to be negative. Of course, everyone knows the stock market is going to crash tomorrow. And, all of you simply love reading about the impending doom.
I know from personal experience that when I write an article which is negative on the stock market, I receive about 10 times more “likes” than when I am positive on the market. And, since I am more interested in identifying the accurate short term direction of the market, rather than feeding people what they want to read, I am able to see both sides of this coin.
Let’s face it folks; bearishness sells. Bearishness seems to be what the public wants to see in print. But, have you ever wondered why?
Reason For Bearishness
Roy F. Baumeister, a professor of social psychology at Florida State University, captured the idea in the title of a journal article he co-authored in 2001, “Bad Is Stronger Than Good,” which appeared in The Review of General Psychology.
In that article, he explained that those who are “more attuned to bad things would have been more likely to survive threats and, consequently, would have increased the probability of passing along their genes. . . .Survival requires urgent attention to possible bad outcomes but less urgent with regard to good ones.”
This seems to cause man to become hyper-focused on the negative, which is driven by his innate desire to survive. Furthermore, when we consider that fear is the strongest emotion generated by our brain stem, we can develop a negativity loop that drives us to continually focus upon the negative by our strongest natural tendencies.
Now, we have a better understanding as to why fear or bearishness sells. Our innate tendencies seem to drive us in that direction, despite all the empirical data to the contrary. While our innate tendencies seem to have been pre-programmed within our brain stems to assist man to survive in a life and death struggle, I am not sure such hyper-focused tendencies help us in all aspects of our current lives in which we clearly allow them to reign. It certainly does not help those who are seeking to profit from both sides of the stock market. In fact, being so hyper-focused on the negative will always have you either missing out on a stock market rally, or, worse yet, shorting one.
It is for this reason that we recognize that contrarian thinking is much preferred to “group think” when dealing with financial markets.
Now, consider how many of you have maintained a bearish bias of the stock market since 2009? And, we have heard all the same reasons that feed our natural bearish tendencies. But, one has to question if the fundamentals, which has many currently bearish, will foretell a long term top in our market so that the majority of the market may prepare for the crash everyone seems to know is coming. Well, has the market ever telegraphed such a market decline?
Are You Part Of The “Herd?”
Think about it. Is it more fashionable to be bearish today than bullish? The Fed is taking away easy money. The economy is supposedly not doing so well. GDP growth has been anemic. Commodities have been in a free fall for years. Real unemployment is still quite high, and we recently saw horrendous employment numbers. The government debt is increasing at an alarming rate. Insurance costs are rising by double digit percentages annually. Is there any good news out there, or do we have a solid wall of worry being built?
Does all of this negativity sound like we have struck the top of our long term bull market? Or are our natural tendencies simply driving us on the “bear bus?” Of course, this does not preclude the potential for the market to give us another pullback into the summer. But I really do not see strong evidence that a very long term top is in place for this bull market which began in 2009. In fact, I still believe we will see levels approaching, if not exceeding, 2500 in the S&P500 before we can consider a long term top to the market being in place.
Stock investor John Templeton (1912-2008) is credited with the following bit of investment wisdom in February 1994: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
Does the news flow or investor sentiment sound euphoric? Heck, I can’t even find optimistic! Does this suggest that we are topping in a long-term bull market or do we still seem too bearish to be at a major top? Just something to ponder.