In witnessing the vast amount of carnage taking place in individual equity names of all shapes and sizes I can't help but be reminded that financial markets take special delight in warped displays of psychological despondency that are meant only to be diversionary in nature. Of course, the greater the severity of the despondency the more likely that the effort being exerted by the market serves purpose to divert attention from a substantial prize. In other words, markets do not take time to inflict an inordinate amount of pain to hide nickles and dimes. The prize on the other side of the pain trade must be substantial in nature to justify the effort.
With this in mind, let's look at what your average investor, fund manager and casual market observer have witnessed in 2015:
- They have witnessed silky haired, moon gods of finance such as David Einhorn and Bill Ackman being reduced to spume at the bottom of a city sewer.
- They have witnessed cult like energy names such as SunEdison, Westmoreland Coal and Kinder Morgan get absolutely pummeled.
- They have witnessed the superheroes of finance like Carl Icahn declare Armageddon right on the horizon.
- They have witnessed all but a select few stocks either lose money or do nothing.
- They have witnessed an indecisive Fed that wants to load bullets back into the liquidity gun just in case.
- They have witnessed gun stocks move substantially higher as everyone is afraid of everyone and everything.
- They have witnessed headline after headline of every fear imaginable from global terrorism to global recession.
All the magicians tricks are on display for a captive audience of the battered husbands and wives of Wall Street to fear taking decisive action of any shape or form. It really is no different in essence from the 2009 lows. In fact, if you were to look at the markets according to sentiment indicators alone, some are reflecting a mood of pessimism similar to 2009 despite the fact that we are 5% off all-time highs in the S&P.
The message here is a simple one: The fear being created is pure theater. The purpose is to distract so that the eyes, ears and nose of those participating moves off the scent of the market. Scenarios that diverge substantially from the headlines will likely be the most profitable for 2016 and beyond.
Financials remain advantageous with an emphasis on small to mid-sized regional banks. Select technology works, as well.
This bull market is young. Enjoy it.
