Coming into the week, I am beginning to wonder what’s more detrimental to the market:

• Too bullish
• Too bearish
• Indifferent

A lack of interest in the stock market is a legitimate concern.  Even as it moves higher on a daily basis, the rally was ignored and bullishness had never taken hold beyond Wall Street (and had fewer fans on the Street).  What does it mean when investors are neither bullish nor bearish?

We understand that a contrarian approach to investing says the market rallies on severe bullishness and vice-versa, but what about indifference.

Back in May, the neutral reading from the American Association of Individual Investors (AALL) survey registered the highest level of aloofness (49.79) since February 17, 2000.  I understand the current skepticism and back then, everyone was going to retire before age 40 and buy an island.  Whether it was a gut feeling or commonsense, the neutral reading was the perfect sell signal.  I have to do more research to see if this was an anomaly or not, but a mass indifference has not yet been called a sell signal.

Hanging Out In Cash

If people aren’t interested in the market, then they’re not putting their money to work.  So, if the market needs more buyers than sellers to move higher, those sitting on their collective hands or heading for the hills can’t help stocks.  On another note, something happened last week that hasn’t happened in a long time.  Investors pumped more money in cash funds than stocks or bonds.  According to Bank of America, the week through Wednesday saw the following:

• $17 Billion cash funds
• $3.3 Billion out of stock funds
• $400 Million into bond funds

Apparently, this hasn’t happened since 1990.

Investor Sentiment	Reading
Bullish	32.1
Neutral	39.2
Bearish	28.7

In addition, the last time more than half of AAII survey-takers were bullish was on December 25, 2014, when the reading touched 50.94.  The bottom line is, even that was a really low level of enthusiasm.  Now, the bullish reading is only 32.1, which is far from the kind of irrational exuberance that marks market tops, while the neutral level has climbed significantly.

Then, there’s the report by Mark Hulbert; one of his key market measures shows net bearishness at a 15- year high, which doesn’t mean the market bounces super-fast, but it does mean there is too much pessimism.

Speaking of which, Main Street confidence has trailed the stock market since the tech bubble burst.  Much to the chagrin of the Federal Reserve, it takes a lot more than a major stock market rally to get Main Street excited and confident.  It takes good jobs and higher wages.  It takes a notion that when a ship is sailing in the right direction, the same tide lifts all boats.  Looking at the dramatic spread, better rebounds of confidence versus the stock market is clear that the latter can influence or derail the former, which hasn’t erased the frustrations and skepticisms of Main Street.

A Lack of Leadership

There are additional reasons for subdued confidence in America- our rudderless ship in Washington D.C.  Consider the June poll on American institutions from the Gallup organization.

Confidence, measured by “great deal” and “quite a lot” in the three branches of government ranked poorly:

• Executive 33%
• Judicial 32%
• Legislative 8%

So, while it was a bombshell, the resignation of John Boehner as Speaker of the House wasn't a surprise and for many, it was a relief.  It sets up a battle for his replacement and perhaps the soul of the Republican Party.

This matters to investors for several reasons, but immediately; it could set off a battle over the budget, and even the use of continuing resolutions (CR).  Boehner didn’t relish battling conservatives who were willing to shut down the government over the federal funding of Planned Parenthood.  Now, there’s talk that his replacement should draw the line at the use of CR, which has been implemented more than 50 times since 2001.

It’s a cowardly way to ignore issues that fester and become even more problematic.

Catalonians Speak Over the weekend, elections in Catalan saw major win for the secessionist movements.  If the anti-capitalist joins the “Together for Yes” coalition, we could see the beginning for an independent Catalan. The EU has threatened to kick Spain out if that happens. The movement against bloated governments, looking to maintain welfare utopias at the cost of true prosperity and opportunity isn’t just an American phenomenon.

The U.S. government has shut down 18 times and the world didn’t end.

There’s a chance a shutdown could pressure the market, although I think investors are more knowledgeable and most aren’t going to sell their investments because D.C. can’t get its act together.

The fact of the matter is that our government is bloated and controlled by special interest.  It’s forgotten about the nation as a whole, mastering the art of being re-elected by bringing home the bacon, even as our national debt level has soared past our annual gross domestic product (GDP).

This is what the 2016 election will be about and it could be the ultimate moment of truth.  How much more debt can we accumulate before reaching an inflation point of no return?

Moreover, how much longer will households that have made enormous sacrifices, including reduced paychecks accept reckless spending by the people elected to protect the nation, not harm the nation?

Today’ Session

Equities have been under pressure all morning after receiving more bad news from China, and yet another downward revision of global GDP from the International Monetary Fund.   The release of consumer income and spending has mitigated the damage but there clearly isn’t any leadership this morning.

• Consumer Income +0.3
• Consumer Spending +0.4

Wages were up 0.5% in August, which is important coming into a jobs report week. In addition to the employment report, we’ll get a lot of chatter from Fed officials including William Dudley who’s already echoed Yellen’s assertion of a rate hike this year.

It’s going to be a difficult start to the session and we are going to sit on the sidelines for now.

 

 

Comments

not much in our gov period when every thing is punish the general public nothing is done to help overall citizens does not make you want to invest ---- Jeff owen on 9/28/2015 9:56:37 AM

Just because people are bearish doesn't mean that it's not a bear market. Markets move based on expectations and change when no more positive, or negative sentiments significantly change the view - at a top the majority think everything is good and they're "all in", at the bottom, "the world is ending". Being bullish when the market is rising is "logical", being bullish when the market has fallen 20-25% is hard, even if the indicators are bullish. Right now we are in a Dow Theory Bear Market - based on non-confirmation of the Transports and Industrials, followed by breaking of previous support points - for what it's worth. The latter comment because the Dow Industrials and Transports are not what they were when Hamilton first wrote about them. When the herd is milling, and a storm is approaching, a smart c'boy hunkers down for a real ride. Stampedes aren't fun for anyone, least of all for the c'boy. steve on 9/28/2015 9:59:02 AM

Main Street's lack of interest in the stock market coincides with the rise in interest for socialism and Marxism. Only a few elites can actually have a chance to participate in the market. Easy - Peasy. Barry Gold on 9/28/2015 10:00:32 AM

Good morning Mr. Payne, I started my business in Jan. 1992. With the help of my great employees I have built a good business and created 55 good paying jobs. Mr. Obama had nothing to do with that success! This economy and country will not get turned around until our leaders understand that hard work, persistence, honesty and the free flow of capital are trumpeted as to WHY this country succeeds. The politcians only know how to spend other peoples money in foolish ways. This is very disheartening to type "A" people that know how to get things done. I wish we had more leaders that have earned their stripes like most small business owners have. Through the school of hard knocks! Government needs to get out of the way and let the American Spirit explode into something truly fantastic for our future generations. We still have time but we must act now. As Pope Francis said last week, follow the Golden Rule and the world would be such a better place. God Bless America! Thanks Gregory R. Sheehy on 9/28/2015 10:45:22 AM

That business indicators are negative with an anti-business administration is not surprising. Unfortunately, pundits keep mistaking administration ignorance with intention. Look at corporate and personal taxes, illegal immigration, joblessness, expanding social welfare, Obamacare, foreign policy that arms our enemies and endangers our allies - our economy is under assault. Could disabling the upper middle class with a stock market crash be the next domino to fall? I think conspiracy theories make more sense than calling the administration naive Al on 9/28/2015 12:08:16 PM

Always enjoy your assessments, information, and advisories. I listen to KFI Los Angeles when you air your segment. Agree with business indicators being off. The true unemployment rate is 12% since people are off the rolls,occupying temoporary job, or are no longer looking for work. Major US corporations are buying back stocks at an alarming rate. APPLE and IBM are buying back over 60 billion which is unheard of. "Caterpillar" is having a difficult time and they move earth all over the planet. These buybacks seem to occur at the peak of markets before a major correction. Our stock market has a disconnect with actual growth here in US. Many of the companies in US reflect foreign investment and many foreign nations are in serious straits at present. The only way the economy recovered from 2008 was to print more money and prop up major corporations so they would not fail. With 20 trillion in debt, we can no longer print paper and distribute it. I am amazed many investment gurus are advising the ditching of major stocks to protect one's principal which can never be recovered if we tank once again. Donald Trump may be the only candidate to understand the market and business climate at present, with no vested responsibility to special interests. I think we need a wealthy candidate. It reminds me of Teddy Roosevelt whose bullish personality and true american spirit were factors in his electibility. I think Donald Trump has taken a few elements of the Teddy Roo sevelt play book. Always confident, sometimes wrong, but never in doubt. That is also the creed of pilots. We need a pilot at the helm of this nation not a bunch of controllers arguing in the tower. Donn Hickman MD on 9/28/2015 1:33:52 PM

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