Sentiment Is Terrible...And That Is Bullish

1.) SENTIMENT – People often say, “Markets don’t make sense!”. This is usually a reaction to how markets moved in a way different from what they thought should happen in markets. News flash…markets don’t care what anyone thinks. Wars. Elections. Interest rates. Earnings. Government debt. Oil prices. Inflation. The Fed. Valuations. Headlines. Scandals. CEOs saying dumb things on conference calls. Whatever it is, everybody has their own idea of how heavily those things should impact stock prices. Again, markets don’t care. As investors, we don’t get to choose which variables the market prioritizes. The collective market does. That’s millions of participants around the world. Different objectives. Different time horizons. Different mandates. Different emotions. Different incentives. Different information. Different levels of volatility tolerance. And yet all of this chaos gets boiled down to the simplicity of price. Price is a live auction between buyers and sellers processing all available information in real time. This is why sentiment matters so much more than most investors realize. And what did we just see? US consumers have never been more pessimistic, according to UMich's Surveys of Consumers. Yes, that’s priced in…and, so far, the market doesn’t care how consumers feel.

2.) IPO – There’s a lot of ferver over the IPOs coming from SpaceX and OpenAI this year. Is buying these IPOs the right move? Well, this is just a gentle reminder about what history says about highly anticipated IPOs. History suggests a little caution. Across major U.S. IPOs, median 3 month max drawdown was 18.5%. While the average 12-month stock return was 40%, median was -8.5% showing extreme divergence.

3.) YIELDS – The 10-year Treasury yield is up about ~40 basis points year-to-date. The move through April has been driven mostly by higher inflation expectations. The leg up in May, however, has been driven by rising real yields. During this time, Gold is down a little over -2%. Typically, gold does not like rising real rates. Will this continue? No idea. But gold continues to have significant resistance at about $4,650 all the way up to $4,835. It’s trading at $4,520 this morning.