Major averages nudged lower yesterday on lower volume after the prior day’s strong move. The number of actionable stocks has been sound over the past several days which bodes well for the market’s internals. Automotive parts retailer O’Reilly (ORLY) had a buyable gap up on a strong earnings report. ROE 39.1%, earnings and sales are accelerating, group rank 8.
Summary Two months ago, my sentiment charts were screaming BUY. I added to many positions. About a month ago, some of my sentiment indicators reached lows not seen in a year or longer. The time to buy stocks is when there is “blood in the streets” when others are fearful and selling. Sentiment has recovered quickly. After making his fortune buying during the panic that after Napoleon’s Battle of Waterloo, 18th century British nobleman and member of the Rothschild banking family, Baron Nathan Rothschild, is often credited for telling his clients that “The time to buy is when there’s blood in the streets.” (See ” When There’s Blood In The Streets “) I’ve explained in past articles such as ” SPY 8% Off Record High While WLI Rises To 6-Week High ” why I like SPY as an investment for the long-term. I use fundamentals to pick individual stocks and SPY for my portfolio, but I seldom buy as they are making new 52-week highs. I try to buy when they are on sale and when the blood is running in the streets. Every week I review my sentiment charts of the weekly data. In this article, I compare the sentiment levels from various surveys in my table to get an idea of overall investor sentiment. (click to enlarge) Note: “Blood Level” of 1 means the data is in the lower 20% of the graph while a reading of 5 is for the data in the upper 20% of graph. To get better prices, I start with my list of “Explore Portfolio” stock picks then wait for market pullbacks and extreme negative sentiment levels to buy if they haven’t quite reached the “low ball” prices I set ahead of time to buy during market panics and other periods of market inefficiency. Said another way, I like to take profits as markets make new highs then buy back shares when my sentiment charts loudly shout at once “Buy” as most investors are afraid and selling. Two months ago when the S&P500 made its low for the year, most of my sentiment indicators were at screaming buy levels not seen since the 21% bear market correction in 2011. While recovering, most of the sentiment indicators I track are still improving and have yet to reach extreme levels. Some, like the ten day moving average of the put to call ratio shown below have fallen enough to suggest we are again due for a market pullback, so I’ve taken profits in my stocks to have funds to buy any major pullbacks. If you have other favorite sentiment indicators you want tracked in my table, then let me know in the comments and I will consider adding them to future articles. What follows are the charts and brief explanations for the measures of sentiment I follow, in no particular order of importance. Chart 1: Put-to-Call Ratio – 10 day moving average chart courtesy of Stockcharts.com (click to enlarge) Chart 2: AAII American Association of Individual Investors Sentiment Survey Numbers posted weekly here on Seeking Alpha From AAII Sentiment Indicator , “The sentiment survey, taken once a week on the AAII website, measures the percentage of individual investors who take the survey who are bullish, neutral and bearish.” (click to enlarge) Chart 3: II: Investor’s Intelligence Survey From Investors’ Intelligence Sentiment Indicator : The “Investors Intelligence Survey” or IIS questions stock-market newsletter writers once a week to see if they were bullish or bearish on the stock markets in the near-term. Newsletter writers have a large following as a group and are thus considered “market experts.” Investor’s Intelligence web site (click to enlarge) Chart 4: Ticker Sense Blogger Sentiment vs. S&P500 From Ticker Sense Blogger Sentiment Poll : “The Ticker Sense Blogger Sentiment Poll is a survey of the web’s most prominent investment bloggers, asking “What is your outlook on the S&P 500 for the next 30 days?” Conducted on a weekly basis, the poll is sent to participants each Thursday, and the results are released on Ticker Sense each Monday. The goal of this poll is to gain a consensus view on the market from the top investment bloggers — a community that continues to grow as a valued source of investment insight. © Copyright 2015 Ticker Sense Blogger Sentiment Poll.” (click to enlarge) Chart 5: NAAIM Exposure Index From NAAIM Exposure Index – National Association of Active Investment Managers, “The NAAIM Exposure Index represents the average exposure to US Equity markets reported by our members.” Screenshot source Chart 6: CNN Money Fear & Greed Index The CNN Money Fear & Greed Index is derived from seven indicators explained here Screenshot source Notes I trade SPY around a core position in my newsletter’s ” Explore Portfolio ” and with my personal account. With dividends reinvested, my explore portfolio holds 137.202 shares of SPY with a “break-even” price of $99.33. I also have the index fund version of SPY in both my newsletter’s “core” portfolios. SPY is the exchange traded fund for the S&P 500 Index. VTI is Vanguard’s “Total Stock Market” exchange traded fund. If you want to invest in a single fund, that is my first choice over SPY. I recommend SPY and several others in my core portfolios for more opportunities to rebalance. VOO is Vanguard’s new exchange traded fund that tracks the S&P 500 Index. It is a lower cost alternative to SPY. I own and write about SPY, as I have many years of data for it, but VOO could do slightly better than SPY over time because it has a lower expense ratio. Disclosure : I am long SPY and own the traditional index fund versions of VTI and VOO bought long ago in various taxable and tax deferred accounts. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
How wealthy has China become? At last count, the country accounted for a full 8 percent of all global ultra-high net worth investors (UHNWIs) – those worth more than $50 million. What will those UHNWIs do with that newfound wealth? That’s an important question, because household wealth is a key driver of consumers’ consumption and investment decisions as well as entrepreneurial activity, and that holds true whether one is Chinese, American, or otherwise. China and the United States led the world in wealth creation over the past year, while other countries saw their relative wealth decline as a stronger dollar reduced the value of many assets denominated in local currencies. In its sixth Global Wealth Report, the Credit Suisse Research Institute provides a comprehensive view of household and per capita wealth all over the world. In research derived from that report, analysts give several key takeaways for investors with a long-term focus. USA Leads Wealth Creation… American household wealth grew by $4.6 trillion to $86 trillion between mid-year 2014 and mid-year 2015, an increase of 4.5 percent per adult. Average American net worth is $352,996, 21 percent higher than before the financial crisis, but the country’s median net worth is just $49,787 – with the gaping difference between the two explained by the fact that the U.S. has a high proportion of the world’s wealthiest people. The United States has 15.6 million millionaires – nearly half the global total – and is home to 48 percent of the world’s 123,800 ultra-high net-worth individuals. China has the second-highest share, the aforementioned 8 percent. Investment implications : Demand for the services of U.S. money managers is likely to continue growing, as will spending on higher-end brands such as Ralph Lauren (NYSE: RL ), Phillips Van-Heusen, and Apple (NASDAQ: AAPL ). … But the Middle Class Is Squeezed Here’s the flip side of the above: By Credit Suisse’s definition, some 38 percent of American households are middle class (wealth between $50,000 and $500,000), but they control just 20 percent of the wealth. Only Singapore, and Switzerland show similar disparities. In Switzerland, for example, the middle class comprises 44.5 percent of the population, but controls just 20 percent of the wealth. In addition, the global middle class has yet to fully recover from the major hit it absorbed during the financial crisis. Between 2000 and 2007, 267 million people joined the middle class. Between mid-year 2007 and mid-year 2008, 115 million people dropped right back out again. Since 2008, the middle class has grown by just 26 million people. What’s more, the amount of wealth that the global middle class controls has grown much more slowly in the wake of the financial crisis than it did beforehand, and members of the European and African middle class are still poorer than they were before the financial crisis. In other words, the global middle class is smaller than it was a decade ago, and the relative importance of the middle class to the overall economy in the U.S. and a few other places is falling. Recent gains in wealth have been concentrated disproportionately among the already wealthy, as opposed to the middle class. In the United States, Credit Suisse says the middle class share of wealth is being “squeezed by the exceptionally high wealth of the 12 percent of adults above middle class.” Investment implications : As middle class consumers in the United States see their share of overall wealth decline, companies that appeal to value-conscious consumers – Amazon (NASDAQ: AMZN ), Dollar General (NYSE: DG ), Priceline.com (NASDAQ: PCLN ), Wal-Mart (NYSE: WMT ), and more – should continue to be popular. Watch the Emerging Middle Some middles are different than others. While the middle class in America (and much of the developed world) has seen its share of the national wealth decline, those in the middle of the road in emerging markets are enjoying the opposite, with their combined net worth accounting for a growing percentage of the total in their respective countries. The global middle class has grown from 524 million households in 2000 to 664 million in 2015, a 27 percent increase. Some 41 percent of them live in emerging markets, where the ranks of the middle class grew 3.3 percent a year between 2000 and 2015, compared to 1.34 percent in the U.S. China now has a larger middle class than the United States – 109 million people to 92 million. In Brazil, China, India, Indonesia, and Mexico, the middle class controls a disproportionately large share of wealth. India ranks among the most extreme examples, and the 3 percent of the households that qualify as middle class own 23 percent of the country’s wealth. In Mexico, 17 percent of households are middle class, but they account for 40 percent of the country’s wealth. Investment implications : In countries where middle-class consumers play an outsize role in the economy, investors would do well to think about how to capitalize on their wants and needs. Because the recent appreciation of the dollar has diminished the spending power of middle-class households in the developing world, Credit Suisse suggests that investors steer clear of global luxury goods companies in favor of local brands, particularly technology or service sector companies, such as the Samsung Group’s Shilla Hotel and Resorts ( OTC:HSLLF ), Chinese Internet company Tencent ( OTCPK:TCEHY ), MercadoLibre (NASDAQ: MELI ) (an Argentinian eBay), Indonesian retailer Matahari Department Store ( OTC:PTMSY ), and Mexican media giant Televisa (NYSE: TV ). Don’t Be Fooled By China’s Wobble According to the Credit Suisse Research Institute, there’s only one word to describe China’s wealth accumulation: Relentless. Since 2000, China’s per capita wealth has quadrupled to $22,513, and the country has more than a million millionaires. As of June 2015, its total household wealth of $22.8 trillion trailed only that of the U.S. That said, a year-long boom, in which Chinese stocks rose 150 percent, came to a spectacular end just a month later. The Shanghai Composite Index is down 25 percent since the end of June, and the Chinese government devalued the renminbi over the summer, eroding the international purchasing power of its citizens. But stocks account for just 10 percent of overall household wealth in China, and the country also has a high personal savings rate. In other words, it’s not about to fall off the global wealth podium anytime soon. Investment implications : China took just 15 years to grow from $6.3 trillion worth of wealth to $23 trillion – an achievement that took the United States 33 years, between 1939 and 1972. Credit Suisse predicts that Chinese wealth will continue to grow at a rate of 9.4 percent a year over the next five years, at which time the country’s population will be as wealthy as the U.S. was in 1988. Investors should seek out those companies best positioned to sate China’s growing consumer appetite over the long haul. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.