By John McDonald
Both the S&P 500 and the Dow Jones Industrial Average have been booming upwards with hardly a pause since the day after Donald Trump won the Presidency of the United States in November of 2016. Having bolted upwards by over 40% from then to today’s close at 3,003.67, the S&P 500 appears strong and headed higher still.
Yet the “experts” at MarketWatch tell us that investors have not been this bearish since 2008.
Something seems a bit “off”.
One wonders: Who are the “investors” to whom MarketWatch refers? Are these “investors” actually representative of the collective psyche of investors in American equities?
As it turns out, MarketWatch experts are taking their queues not from investors, but from fund managers… and from a small number of them, at that.
Bank of America’s Merrill Lynch division recently performed a survey of 179 investment fund managers to gauge the psyche of the market. It is on the basis of that narrow data set of 179 fund managers that MarketWatch makes the broad statement that “investors are more bearish”.
This conclusion is intellectually infantile. Not only do 179 fund managers absolutely not serve as an effective proxy for the collective psyche of the American investing public, but the specific group of fund managers included in this survey aren’t even a substantial or representative sample of fund managers.
This Bank of America Merrill Lynch survey is notable because the 179 fund managers have under their collective management a total of about five hundred billion dollars. That is a lot of money for sure, and can’t be dismissed lightly. But in context, five hundred billion dollars is barely more than one percent of the value of the market overall. From another perspective, the total capital under management for all of these 179 money managers is approximately equivalent to one half of the value of just one company: Apple.
Thus it seems rather questionable to hold out the collective mood of “investors” as on the basis of a tiny, unrepresentative sample.
This is not to say that investors are not bearish, though there’s scant evidence they are. The point is that MarketWatch’s analysis is based on a data set wholly inadequate to draw such conclusions.
Further bolstering the notion that MarketWatch is misusing the data provided by the Bank of America Merrill Lynch report is that the author of the report, Michael Hartnett, does not draw the same conclusion from the results of his survey as does MarketWatch.
Instead of pointing to downward risk, Hartnett suspects that the bearish opinion revealed by his survey is actually a contrarian indicator, suggesting a continued bullish future for stocks. This makes sense, as extreme readings of either bullishness or bearishness have historically indicated and underlying market bias in the opposite direction.
Whether MarketWatch has provided objective analysis or biased commentary (with the latter appearing most likely), one thing is certain: One can never take too much care to see that their portfolio is well managed, well hedged and well diversified.