Market News Coverage: Fear Sells Big
Fear sells. It creates emotion and keeps TV viewers from changing channels. It keeps digital social media consumers from clicking away to other social networks. It keeps many investment “newsletter” writers in business selling $99/year subscriptions. And it keeps many retail investors frozen in their tracks, out of the markets, or selling stocks when they should be buying. The data doesn’t lie. Selling fear is a great business.
Which brings me to the title of this week’s episode, titled Fear Sells. Before we press onward, please take a moment to click on both the subscribe and notification bells so you will be alerted when our investment team uploads our latest content. Or better yet, give our OHFG team a call at 877-896-0040 to speak to our team and set up an initial consultation with an OHFG advisor to discuss your personal financial situation.
Here’s a summary of the year to date returns of a few major equity asset classes year to date.
As of this writing, the SP500 has gained a total return of a bit over 20%. The NASDAQ composite almost 37% YTD. The top 100 Nasdaq market cap stocks as represented by the QQQ ETF was up 44% year to date and the Dow Jones industrial index up over 8% including dividends. Even the normally boring Japan Nikkei is up 27% year to date. While our team entered 2023 bullish on the markets, 1st half 2023 returns, and on growth stocks, and very bullish on where we finish 2023, we have underestimated the FOMO that has entered the markets over the last 4 weeks in July. Ever since the herd flipped to the notion that we first discussed 10+ months ago, that inflation is symmetrically declining, and ever since the S&P exceeded 4300/50, we have seen FOMO set in for both retail and institutional investors. We currently are pulling forward some of the 2h23 return our team has forecast.
That being said, if you turn on the TV, browse a financial “news” site or read a newsletter, just as they have for a year now, the vast majority of financial headlines remain negatively biased and fear full. Case in point. Last Thursday there was a hint of the Bank of Japan changing their interest rate policy. More specifically there was talk of them “tweaking” their yield curve control policy which is like our QE program to let their long-term rates rise above, are you ready for this, above 50 basis points. That’s one half of one percent! And almost immediately the financial news headlines blew up with “the following headlines. “The bank of Japan could spell trouble for US Treasuries”. “The BOJ just shocked the markets”. “The BOJ sends Yields soaring with a surprise policy change.”. The BOJ may crash the bond markets”.
The computers took over and instantaneously and indiscriminately sold Treasury bonds, S&P 500 stocks, and Tech stocks for about 6 hours. The “rational” for institutional investors, who are trading short term with computers, to do this was? Largely because the BOJ has been buying much of its own bonds to keep yields below 50 bps over there. The theory is, if they let Japanese yields rise, it would encourage Japanese investors, who being some of the most risk adverse investors and excess savers in the world, and one of the largest foreign creditors of the US federal government owning our Treasuries, to invest more of their Yen savings at home in Japan, and less abroad. These actions might reduce demand for US Treasuries and send our own yields higher.
It’s pretty much the only thing financial networks wanted to focus on last Thursday, because, in theory, it would be bad. Forget that GDP growth was just reported to be in the mid 2%’s, normally goldilocks. Forget that inflation has tanked over the last 12 months and the employment cost index rose only 1% in June, the smallest increase in 2 years, and fast forward to the BOJ. That’s the real issue. That will cause a crash is what the networks were implying.
Or take the “news” they reported on mid-week. Look at the spin they put on it to have investors infer it was bad news. The supposed news story was this, the Dow Jones Industrial Average saw a 13-day winning streak which was the longest streak since? What year? 1987 and before that it was 1897, with the implication as always that this is a bad thing! Remember how bad 1987 was? Of course! The market “crashed back then! Viewers and readers, don’t you remember October 1987? was the implication from the stories. Don’t you remember the crash? And of course, no one remembers 1897 because that was so long ago no one is alive so it must be bad!
Folks, since when is a long winning streak a bad thing? And more so, since when was a winning streak in an index that has lagged massively year to date, is value biased, has higher dividends, and generally a good representation of a stock market that is broadening not narrowing, a bad thing? I guess if you were short or had listened to their fear-based stories for the last 12 months it’s a bad thing.
Or investors, listen to the stories about the office real estate markets. That’s the issue that’s going to “crash” the stock markets and bring down the economy. Those stories have been out there since Covid hit the global workforce 3 and a half years ago. In 2023, those stories have been amplified by the financial media louder than most other subjects. It hit cocktail party talk this summer in my neighborhood. Which is a normal indicator of “too late to matter” or “the worst is priced in”. And while clearly, the office markets are not in great shape in most cities, it appears as if occupancy rates in some of the worst markets such as San Francisco have troughed, and demand is picking up. In fact, many big institutional investors look to be nibbling for the first time in years as valuations have dropped, cap rates risen, and overleveraged and marginal players are force to exit.
Investors, it’s a proven fact that fear sells better than optimism. That the emotion of fear is much more powerful than happiness. However, at the end of the day, over longer-term investing horizons measured in years, which equity investing is, how many rich pessimists, short sellers, or news reporters can you name? Just saying.
At Oak Harvest, we currently manage broadly diversified equity portfolios that balance risk and reward for our clients. For those investors who are less optimistic and risk taking, those seeking higher dividend income that grows, those investors willing to forgo some potential price appreciation in favor of lower volatility, we have a dividend growth equity model.
Those investors who are more in the optimistic camp, seeking higher long-term price appreciation which does carry higher expected volatility without the focus on dividend income, we have a Blue-Chip growth equity model. The overall tools our advisors and financial planners use are usually a combination of markets based and insurance based tools to meet your retirement goals. Our investment team is busy working on some new, and highly unique equity models, that few advisors have the experience our investment team has for our advisors to use as tools for our clients in the not so distant future. Stay tuned. The future and stock markets are always uncertain and that is why our retirement planning teams plan for your retirement needs first, and your greed’s second.
Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at 877-896-0040 or click here to schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.