There is no doubt the stock market has been sluggish with August being the toughest month; and yet, it’s the pulse of individual investors that worry me the most.
I’m not concerned about the wisdom of the crowds (a lot of movie plots and television shows using this premise), or the madness of the crowds (see Charles Mackay); my concern is with the crowd missing out again.
Indifferent Bears
Wall Street lore has it that whatever the emotions of individual investors are, stocks will move in the exact opposite direction. If that’s the case, we are setting up for a mammoth rally higher. Bullishness has plumbed from already low historical levels (historical average 38.5%), while bearishness is at its highest point since March 16, 2017.
| Sentiment | New Level | W/W Change |
| Bullish | 28.1% | -6.1 |
| Neutral | 33.6% | +0.6 |
| Bearish | 38.3% | +5.5 |
I’m a contrarian, but I think the Street is full of hubris looking down their collective noses at the individual investor’s emotions and timing. Wall Street sentiment rarely dovetails correctly with market direction. On that note, the Street continues to grapple with trailing performance and finding a way to talk stocks lower for a fresh chance to get a bite out of the apple.
While the Street plays its games, mostly to mask poor performances, I caution individuals from settling into the same kind of thoughts about picking the bottom of the next pullback. Sure, it is great buying dips, but more and more would-be investors have been missing those pullbacks; and now, it seems as though more will skip as they brace for a pullback.
These are the summer doldrums for sure. Just don’t be lulled into indifference.
Commodity Trends
We are updating our research on the rails, which is one of the best proxies for the economy, and two areas stand out from the rest for the second quarter: coal and metals. Both have been impressive, particularly coal. The full report will be completed this week, but it’s a reminder that the economy is on the move.
| Coal - Year to Year Change | Revenue | Volume | Rev/Carload |
| NSX | +32% | +27% | +4% |
| CSX | +27% | +7% | +19% |
| UNP | +25% | +17% | +7% |
| KSU | +102% | +47% | +38% |
| Metals - Year to Year Change | Revenue | Volume | Rev/Carload |
| NSX | +11% | +5% | +5% |
| CSX | -4% | -6% | +1% |
| UNP | +24% | +15% | +8% |
| KSU | +10% | =1% | +11% |
I continue to see great signs that the underlying elements of the economy are moving like they haven’t in years. The wheels of commerce designed for growth and prosperity are rusty but don’t ignore them or the fact that the overall equity rally is justified and is just beginning.