No Love for this Bull Market

AWall Street Journal ran an article on July 9th titled “Investors Buy Bonds Even as Stocks Rally.” The article begins “Individual investors are helping power the rally in U.S. government [bonds], a sign many remain cautious…” It continues, “The surge in demand is especially notable because investors tend to buy bonds when they are worried…” Apparently, a net $316 billion has been added to taxable-bond mutual funds through May of this year. That’s billion with a b. It states that individual investors have purchased 54% of the newly issued government debt, and this is apparently “on track for an annual record”. And this all begs questions from reasonable minds – did these “investors” notice that a huge rally has been going on in stocks this year? Or that the unemployment rate is at a 50-year low? Or that household debt service ratios are at all-time lows. Or that household net worth continues to set all-time records?*

Anyhow, the article hit many of the usual fear points: “signs of slowing growth”, the “safety of government debt”, a “trade fight” and “hopes for…lower interest rates to reduce borrowing costs throughout the economy.” I can’t help but wonder whether a management team at an S&P 500 company is really going to now consider a good investment project because the federal funds rate drops from 2.25% to 2%. Or that a household will now buy that car because their payment is $10/month lower. Or I wonder whether the financial media have considered that maybe bond yields are not lower due to “slowing growth” – maybe they’re lower, in large part, because technology is deflationary, or at least disinflationary. And who doesn’t like lower prices?! Or maybe they’re lower because a strong U.S. economy is attracting capital from around the world.

But I digress. The point of this missive is to not to make fun of the financial media – though they sure do make it easy at times. The point is to remind you that this fear among investors is most likely another fabulous contrarian indicator, because bull markets generally die on euphoria, not fear. The downturns in 2000 and 2008 have had a lasting effect on the minds of investors. This doesn’t mean that we won’t experience a significant correction like we did last fall. But when this much fear remains in the market, this bull could continue to run for a long time.

Bottom line: Stay patient, stay disciplined, and stay invested.

*See J.P. Morgan Guide to the Markets, 3rd Quarter 2019.