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Why Is Everyone Bearish, Especially When They Can Remain Rational?

By Investing.com (Francesco Casarella/Investing.com)Stock MarketsMay 21, 2022 04:38AM ET
www.investing.com/analysis/why-is-everyone-bearish-especially-when-they-can-remain-rational-200624648
Why Is Everyone Bearish, Especially When They Can Remain Rational?
By Investing.com (Francesco Casarella/Investing.com)   |  May 21, 2022 04:38AM ET
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This week, I was speaking at the Italian Stock Exchange's TOLEXPO event; a very important event in Milan that gave me the opportunity to speak and engage with several investors.

The feelings I heard expressed ranged from fear to anxiety to uncertainty. In general, there was a good deal of pessimism. A few investors were also inclined to invest because when the markets go down you buy better, but again that was a small minority.

Yet, once again, we must put the situation in context...

The stock market, if we look at the S&P 500 index, has lost 18.16% since the beginning of the year. We also note that the drawdown (calculated from Wednesday's close) since the beginning of the year is the second-worst in history.

Source: CharlieBilello
Source: CharlieBilello

Here we can look at the glass as half empty or half full. We can focus on how negative this period is, or we can focus on the opportunities it offers.

I personally focus on the latter, but I do so for a specific reason: I am an investor, and my strategy is built for its first major milestone in 2030. This volatile period will be just one of many that I will probably have to face.

Also, as I always remind readers now that everyone is talking about recession, the average drawdown in recessionary periods is -24% (see below). When I say prudently let's keep the possibility of a -25%/-30% market in mind, this is also inclusive of similar reasoning. Of course there have also been worse drawdowns, but we have to look at probability and statistical frequency.

Source: Goldman Sachs
Source: Goldman Sachs

Recently, Morgan Stanley released a report regarding the possible levels of the S&P 500 between now and next year, in 3 scenarios (basic, pessimistic, optimistic) and ranging from a 17% drop from the current level to an 11% rebound, as per the image below.

Once again, however, I feel that predictions of this kind are of almost no value, if not purely for barroom style conversation, as one cannot predict the future.

Better as I always say to focus on strategy, and how to behave should certain scenarios actually occur. I find that much more practical.

Source: Morgan Stanley
Source: Morgan Stanley

Finally, once again we note that despite a -18% drop in the market, prudent investors' cash levels have surpassed not only the COVID period, but even the subprime crisis.

Source: BoFA
Source: BoFA

This is yet another demonstration that going with the flow and getting slammed left and right by the markets is common practice. These cash positions are probably a result of selling (at a loss) positions that were evidently mismanaged before.

Once again, I always have to laugh: people do the opposite of what they should do when buying in a store, i.e. purchasing products at the normal rate instead of waiting for discounted prices.

This is a contradiction that has no parallel in human behaviour, and should make us reflect on how very often disappointing results come not from the market, but from oneself.

Until next time!

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Disclaimer This article is written for informational purposes only; it does not constitute a solicitation, offer, advice or recommendation to invest as such and is in no way intended to encourage the purchase of assets. I would like to remind you that any type of asset, is valued from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with you.
Why Is Everyone Bearish, Especially When They Can Remain Rational?
 

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Why Is Everyone Bearish, Especially When They Can Remain Rational?

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Comments (33)
G D
G D May 24, 2022 8:36AM ET
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How do you even have a job?
Mike Sim
Mike Sim May 23, 2022 1:01PM ET
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You under the assumption that ATH was fair value. This is a bubble sir
Gershom Zvi
Gershom Zvi May 23, 2022 12:59AM ET
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Dems dont care about stockmarket so be bearish till the end of dems term
Chris Hall
Chris Hall May 23, 2022 12:59AM ET
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bot
William Bailey
William Bailey May 22, 2022 3:43PM ET
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No free cash from Fed and no mechanism to print free cash if Fed wanted to print , means markets are dead and its the hreedy Fed
Meru Pet
Meru Pet May 22, 2022 3:43PM ET
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small retail buyers left
Al Ose
Al Ose May 22, 2022 3:43PM ET
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Helga Greg trisha cuts grass for money
Nickquick Nickquick
BorgataAa May 22, 2022 2:59PM ET
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I love these stupid “im a long term buy investor”. So when do all you long buyers actually sell? Cuz in ten years you will be saying the same nonsense “just buy glass half full” absolute garbage
Listo Simon
Listo Simon May 22, 2022 5:30AM ET
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Why ls everyone bearish when
Kubaaano Wlad
Kubaaano Wlad May 22, 2022 12:55AM ET
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the only reasons to write such an ignorant article right now is to create clickbait revenue and/or to serve as confirmation bias for people holding red longs/to lure new people in. no mention of interest rates or inflation. no mention of supply chain issues. no mention of how overbought the market has been the past 3 years. yeah, you're definitely chasing clickbait revenue.
Istvan Nagy
Istvan Nagy May 22, 2022 12:55AM ET
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You are as wrong as humanly possible.
Meru Pet
Meru Pet May 22, 2022 12:55AM ET
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yeah let's short the index ... EVERYTHING is overpriced 🙄
Spencer Jurkiewicz
Spencer Jurkiewicz May 22, 2022 12:05AM ET
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This guy doesn't understand macroeconomics. The Fed printed 42% of the M2 money supply since Feb 2020. CPI is probably double what it displays because of gimmicks like owner-controlled rent, hedonics, and substitution. Our federal debt, consumer debt, and corporate debt is too high to raise interest rates to realistic market equilibriums without widespread defaults. Government spending crowds out private investments in several industries. Domestic stocks are becoming more bearish because they can see how the weak the consumer actually is in the face of these conditions with lowering profit margins, even on what is considered consumer staples.
Spencer Jurkiewicz
Spencer Jurkiewicz May 22, 2022 12:04AM ET
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This guy doesn't understand macroeconomics. The Fed printed 42% of the M2 money supply since Feb 2020. CPI is probably double what it displays because of gimmicks like owner-controlled rent, hedonics, and substitution. Our federal debt, consumer debt, and corporate debt is too high to raise interest rates to realistic market equilibriums without widespread defaults. Government spending crowds out private investments in several industries. Domestic stocks are becoming more bearish because they can see how the weak the consumer actually is in the face of these conditions with lowering profit margins, even on what is considered consumer staples.
Listo Simon
Listo Simon May 22, 2022 12:04AM ET
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This guy doesn't understand macroeconomics. The Fed printed 42% of the M2 money supply since Feb 2020. CPI is probably double what it displays because of gimmicks like owner-controlled rent, hedonics, and substitution. Our federal debt, consumer debt, and corporate debt is too high to raise interest rates to realistic market equilibriums without widespread defaults. Government spending crowds out private investments in several industries. Domestic stocks are becoming more bearish because they can see how the weak the consumer actually is in the face of these conditions with lowering profit margins, even on what is considered consumer staples.
Erikas Ivan
Erikas Ivan May 22, 2022 12:04AM ET
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Listo Simon  okay, why is this written from two accounts, these https://investing comments man .
kyriakos kyriakides
kyriakos kyriakides May 21, 2022 11:57PM ET
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-trade the interest rates circle-as soon as they STOP talking about increases of rates,get in!But at the moment, stocks,bonds,cryptos are bearish…
 
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