BULLISH OR BEARISH?

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In the market there are always bulls and bears. There are two sides to every story.

Bullish investors believe that the prices in the overall market will go up. A bearish investor is the counterpart to the bull. The bear believes the market is on its way down and has generally negative sentiment.

Given the YTD performance of the market, you may assume that most investors are bearish. Despite this intuitive assumption, there are still bulls out there.

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The Bearish Narrative

It is easy to imagine why an investor might be bearish in today’s environment.

A number of notable investors and fund managers have provided the following headlines in recent weeks.

1. “7 top economic minds think a global recession is coming…” - Fortune

2. “... hard landing in 2023 with a possible deeper recession than many expect…” - Stanley Druckenmiller

3. “... US likely to tip into recession in 6 to 9 months…” - CNBC and Jamie Dimon

At this point, an impending recession and general market doom may be a consensus opinion. There are a number of narratives supporting this view. The pressures due to inflation are clearly top of mind for many investors.

The response of the Fed to inflation and the ensuing interest rate environment has created uncertainty for a number of different components of the overall economy. (e.g., high flying growth stocks and the stock market generally, the housing market, and the many other derivatives of the Federal Funds rate)

There are lingering struggles with managing the supply chain, sourcing goods, and modernizing transportation methods.

To this point, there has been no resolution to the war between Russia and Ukraine. Whatever your beliefs on the issue, there is a much-anticipated energy crisis as Europe marches toward the winter months. Because of Ukraine’s outsized production of agricultural products, the disruption caused by the war could impact global food security in the coming months/years.

Perhaps most important of all, OPEC (an organization accounting for 44% of the world’s oil production) announced that it would cut its supply of oil which will place additional pressure on gas prices, cost of natural gas, and other oil derivatives.

There are many ongoing narratives supporting the bearish investor’s stance. It is easy to see why there is so much negative sentiment about the market and economy.

The Bullish Narrative

There are bullish investors and bull markets.

In a bull market, everything feels good and there is positive sentiment in the markets and economy. Companies report good results and beat earnings estimates. It might be said that the prevailing sentiment of participants in a bull market is greed and the fear of missing out. Because of this, prices soar and returns are high.

At this time, few would argue we are in a bull market. Statistically speaking, the recent performance of the market is clear and what we have experienced across 2022 is definitively not a bull market.

Sentiment, though, is forward looking. Investors attempt to project their views of the market today to determine some future outcome. (i.e., a price or overall return)

Despite all of the negative, bearish news and sentiment we examined, there are still bulls in today’s market. This may be an unusual view at this point in time, but there are always investors willing to go against the crowd and consensus.There are those who will always be bullish about the United States based on its history and economic power.

Many bullish investors would cite the continued innovation related to technology as the foundation of their stance. There is no easier path to defeating inflation than technological advances.

The market has taken such a beating, and valuations are low compared to recent years. There are companies, entire sectors, and even the market as whole that are beginning to look attractive. Perhaps the market has priced in any upcoming changes by the Fed and the pressures of inflation. Many investors see companies considered to be undervalued and can see a clear reason to be bullish.

At this point in time, the bull is the contrarian. They are watching markets closely and waiting for the next run.

Your Next Move

Warren Buffett, widely recognized as one of the most successful investors of the age, wrote in a letter to his shareholders, “Lethargy, bordering on sloth, remains the cornerstone of our investing style.”

Essentially, the best investors have a boring strategy. Yours should be too.

In this type of market, there are a number of beneficial actions to be taken whether you feel bullish or bearish, but these activities are best accomplished alongside a professional. The single most important thing you can do is remain steady and stick with the plan.

Active investors and traders are forced to have a bullish or bearish stance because they are beholden to their investors and quarter-over-quarter/year-over-year performance. The hedge fund managers providing market commentary on television and the CIOs announcing their view of the market trends on podcasts must always have an opinion. They are forced to constantly assess the market and determine if they are bullish or bearish.

You are not subject to these pressures. You don’t answer to outside investment capital, only yourself. Your time horizon is decades, not years or quarters.

You have unique advantages that Wall Street, hedge funds, and other professional investors envy.

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TL;DR

There are always those who feel bullish and those who feel bearish. There are bull markets and bear markets.

It doesn’t matter though.

Your overall strategy should be simple, focusing on long-term results rather than short-term sentiment.

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Do you feel bullish or bearish? Do you understand your mission in this market? Let me know your thoughts!