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  • Writer's pictureRobert Baharian

Doing The Opposite

I've been talking about this for sometime - the consumer, and their "hunch" for what is yet to come. Yet they've been consistently wrong for a long period of time. What you think should happen and what actually happens can be two very different things. Sure, you might be right evetually, but the real questions is not whether you were right or wrong, but how much money did you lose or forgo in the interim.

It reminds me of the scene in Seinfeld where George decides to turn his life around by doing the exact opposite of what he would usually do.

If every instinct you have is wrong, then the opposite would have to be right. - Jerry Seinfeld

We recently saw the Conference Board’s survey of Consumer Confidence. The numbers came in stronger than expected in May but fell on a month-over-month basis for the eighth time in the last twelve months. The survey also asks respondents for their views on stock prices, and this month’s results showed that consumers have grown even more pessimistic towards the stock market as the percentage expecting higher stock prices declined to 28.6% while those expecting lower stock prices increased from 35.4% up to 37.5%, extending the 'bull-bear' spread to 17 months.

Going back to 1987, the current streak ranks as the second longest on record, trailing only the 18-month streak during the GFC that ended in April 2009. See chart below from Bespoke.

This streak is just the fourth time that the bull-bear spread has been negative for nine or more consecutive months. In the lower chart, Bespoke show the S&P 500 going back to 1987 on a log scale, and anywhere the line is red indicates months when negative sentiment towards stock prices exceeded positive sentiment. Bespoke also shaded each streak of nine months or more in gray. In the case of the two nine-month streaks, both began after relatively sharp equity market declines but dragged on even as the market started to rebound.

The streak from November 2007 through April 2009 was a slightly different story. Like the current streak, even as sentiment remained negative, stocks continued to decline, and it wasn’t until a month after the ultimate low in 2009 that sentiment finally flipped positive. The fact that the ‘bull-bear’ spread is still negative seven months after the S&P's last new low shows how engrained bearish sentiment has been among consumers.

In the year after each of the prior streaks came to an end, the S&P 500 was higher all three times with gains ranging from 11% up to 35%.

If the way you invest hasn't been working for you, and you can put your ego aside and come to this realisation, maybe investors should take a leaf out of George Costanza's book and do the opposite of what you would would normally do.


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