A Bull Market That Few Believe
The media made headlines about the S&P 500 entering a bull market, which means the index has recovered 20% from its low point.
However, this particular bull market isn't generating much excitement among people. This is often the case at the beginning of bull runs because they typically emerge from a pessimistic market sentiment and end with optimism. When the markets are down, investors generally lose interest. As the owner of an investor education company, I have firsthand experience of the demand for our courses, and I can say that it's far lower compared to the peak of the previous bull market.
Another notable observation is that ETF inflow in 2023 has been the lowest so far, standing at $147.5 billion, when compared to previous years. Although we still have half a year to go, it doesn't seem likely to surpass the inflows seen in 2020 and 2021 when the bull markets were strong.
It's true that the majority of investors tend to buy stocks when the markets are exciting and prices are high. However, they quickly lose interest when the market declines and they start losing money. It's only natural for people to be hesitant to invest more when they're already experiencing losses.
Some investors may be interested in investing but are spooked by the current situation, such as high interest rates and a slowing economy on the verge of recession. There always seems to be something to worry about as the markets climb amidst uncertainty. Moreover, during bear markets, the news tends to be even more discouraging.
The situation is further complicated by professionals who deny that this is a true bull run. It's evident that the index is being driven by mega-cap stocks and AI-driven hype, rather than a broad-based recovery in share prices. Nearly half of the stocks in the S&P 500 (196 out of 500, or 39%) have not rebounded by 20% or more from their lows, raising concerns among investors about the sustainability of this bull market with only a narrow group of champion stocks leading the way.
Certainly, there are still negative news events on the horizon. In a previous post, I mentioned the new risk of a massive bond issue potentially driving up interest rates again, which could result in lackluster performance in the second half of 2023. However, it's important to note that I am not implying a recommendation to sell stocks. At present, I continue to hold the majority of my stock positions, but I am trimming certain holdings at the same time, and be prepared to buy more when the markets fall.
From a contrarian perspective, the fact that the majority of investors are still uninterested presents a good opportunity for astute investors to buy more before the market gains widespread attention. It's important to have faith because eventually the masses will join in, and by then, your investments would have appreciated significantly.
Bad news can be seen as good news because it allows us to purchase stocks at lower prices. As Warren Buffett once said, "In stocks, it's the only place where when things go on sale, people get unhappy. If I like a business, then it makes sense to buy more at 20 than at 30."
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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12moon : Better to err on caution, unless you have Buffett's huge pocket. Crying over losses is worse than missed the boats, remember live to fight tmr.
102739321 : I will stick my investment mindset with your last paragraph