Date: June 6, 2022

Bull Market in Bearishness

It’s amazing how many articles I see and Google searches being made about recessions and bear markets. Since the 2008 financial crisis, investors have typically pivoted very quickly to being negative when headlines were dark. And since 2009 we have not had any long-lasting stock market declines. When I get questioned about the comparison between now and the Dotcom Bubble, there are many enormous differences, but none bigger than the lengthy period it took for investors to become bearish. Every single decline from the March 2000 peak was met with comments like “BUY BUY BUY”. Very few people sold. They kept thinking it was just another correction and their darling tech stocks would come screaming back. Finally after 9-11 that all changed, but it really took about 18 months.

We don’t have that behavior today. Granted, the decline lasted from the beginning of the year to May 20, but investors became very negative about the markets and the economy in three distinct periods around January 24th, February 24th and May 20th. Each period saw more negativity with May clocking in about as bearish as any period since 2009 except for March 2020.

My thoughts in the short-term are unchanged. May 20th was a low of significance. That’s a high conviction statement. It may or may not be the ultimate bottom from which the launch to 40,000 begins, but I remain firm that a 7-15% rally is here. We’ll take the rest as it comes.

People are acting like this is the first market in history where the Fed is draining liquidity. It’s not. And each time in the past, as recently as December 2018, investors went insane believing that Powell wouldn’t pivot. I have news for you folks. There was only one Paul Volcker and Jay Powell ain’t him. Fed heads can say all they want. If and when credit markets seize up again, ole Jay and & Company will come running to the rescue. There is zero political will to look into the abyss again.

And yes, still like bonds, especially on a reward/risk basis.

On Tuesday we bought SARK and more levered inverse NDX, HYG and high yield funds. On Wednesday we bought IVW and more EWZ. We sold IVE, DINO, EPU and some levered NDX. On Thursday we bought XLRE, DIA and more DOW and high yield funds. On Friday we sold SARK and PCY.


Paul Schatz, President, Heritage Capital