At crucial times, sentiment becomes the key issue for the next leg of the market. On days like today, I ask myself, how bullish are people? Are they adding money to what they have in? Have they stopped pulling money out? Is there interest that's rekindled?
Let me start out by saying that sentiment is extremely hard to gauge. You have services that tell you how bullish or bearish newsletter writers are, but there are fewer and fewer newsletter writers. Their enthusiasm or lack thereof no longer means that much to me.
You have the empirical, such as the data for stock mutual fund inflows. They remain pretty dismal with more coming out in the last month than in despite the amazing run. Many weeks still produce big outflows from stocks. Call that negative sentiment for certain.
And then you have the anecdotal. I did a roundtable today with, among others, my old friend Liz Ann Sonders, the chief investment strategist for Schwab, and she hits the road every week speaking to thousands of investors and in the last couple of months she has detected people actually interested in the stock market again. Mind you, many aren't committing, they are just getting interested.
Given how self-selective her audiences must be, that's still pretty tepid.
I like that. If they were all in, then I would be worried. Where would the tinder be to start the fire? As Bruce teaches us, you can't start a fire without a spark, and that money's the spark for the next leg higher, if there is to be one.
And then there's the uber-anecdotal, me. In the old days when people were all in the market, I was a lightning rod for stocks. I couldn't go 5 feet down Wall Street without being asked about a stock. Five feet!
These days? I'd say maybe once a week I get asked. People want to say hi. The want their picture taken with me, which I might have to politely decline when the iPhone X comes out because of the ridiculously fabulous resolution. I'm telling you it's going to drive me to Botox, although I may be the only one given how Allergan's (AGN) stock got trashed today after what I thought was a very good quarter. Up 7 yesterday, down 10 today.
My point is that people want my picture because they say they like Mad Money and because people want to take pictures and post them on Instagram. I always ask, what do you like, and it's like I might be asking them about a program or a sports team or even what kind of sandwich, as it is usually lunch time. But almost no one says a stock.
I do get asked about Bitcoin quite a bit, far more than I am ever asked about a stock. Usually the people who ask are vociferous backers of the cryptocurrency. I used to shrug and say go buy Nvidia (NVDA) , as they make the cards you need to mine, but then that became too big a reason to own it, so now I refer to an episode of The Good Wife I was in many years ago where I was being cross-examined in court about Bitcoin as an expert financial whiz, and I said Bitcoin was totally legitimate and a great buy where it was, which happened to be about $250. Now it is at $7,000. I am heralded as a genius.
I don't like to waste people's time, but I do always ask, why don't you like the market?
Case in point, we always hear that we got a top in 1929 when shoeshine boys were recommending and trading stocks. So I always ask the shoeshine guys I use -- and I love a good shine -- what stocks they are buying. Most of them look at me like I am one crazy guy, except for one man with a particularly deft use of the polish who told me recently he took a loss on Ford Motor (F) .
So has everyone else, so that's not really a ringing endorsement of the asset class.
I do get some terrific answers, though.
I'd say about a third say, "I just am not interested because it is too dangerous." A follow-up question usually produces a soulful sigh about how they lost everything in the Great Recession or how they lost everything in the dot-com crash. They would much rather be in cash, which is pretty amazing given how poorly cash has done and how well stocks have done. The risk aversion is tremendous.
A second group has been waiting for a pullback forever and has pretty much given up, since the stock market has run so much. "I missed the rally" is something I have heard since the rally began.
A third group says, "You kidding me? With the craziness in Washington, you are asking me why I don't invest?" I always want to engage with these people but I know better because that's way too dangerous these days.
A fourth group says they don't have the money to invest. They aren't rich enough. I always them, if they are still willing to talk, that I started out with very little and built up, but the belief that only the rich own stocks and make money in them because it is rigged against the little guy is a pretty constant refrain.
I always end the interrogation by looking at their phone, which is clicking pictures constantly, and asking them, "Do you like your Apple phone?" They always say yes, they love it. I say then why don't you buy some shares of Apple (AAPL) ? (Allergan, Nvidia and Apple are part of TheStreet's Action Alerts PLUS portfolio.)
They typically screw their faces up and say, "I have no idea."
Why does all of this matter? Because while I know this rally has been amazing, while I know we are in a huge bull market with some periodic exceptions like the drug stocks this week or the foods last week or the retailers all the time, I believe that as long as people eschew this market, as long as they are incredulous or disdainful or scared, there's trillions of dollars of tinder on the sidelines that can still come in. In a very self-fulfilling way, this can take stocks higher as memories die of the bad times and new ones are created based on a better economy and a realization that a combination of individual stocks and index funds can make you a heck of a lot more money than any other asset class under the sun.