Wall Street’s Exuberant Mindset Despite Larry Summers’ Exit
Wall Street has been showing an exuberant state of mind as it rallied after Larry Summers withdrew from the selection for the next Federal Reserve chairman, which according to MarketWatch, could be a cause for concern. The question hounding people’s minds is about whether the corporate earnings outlook has miraculously improved after Summers’ withdrawal, or whether the rally was caused just by a confused state of mind.
Ignoring the “Heads I Win, Tails You Lose” Attitude
A “heads I win, tails you lose” attitude or the tendency to attach a positive outlook towards every news can lead to confusion. This sentiment situation is at the opposite end of the spectrum from the wall of worry that bull markets like to climb, as it is more like the slope of hope that bear markets prefer to descend. Buyers beware as the market may fall quickly when the investors’ mood sours.
The Influence of the Hulbert Stock Newsletter Sentiment Index (HSNSI)
It is interesting to note that bullishness dominates among the short-term market timing newsletters tracked by the Hulbert Financial Digest. As per the Hulbert Stock Newsletter Sentiment Index (HSNSI), their recommended equity exposure is currently 56.6%. This is 45% higher than the exposure level that was present in late August. It is an awfully quick jump back in the bullish bandwagon. The HSNSI is now higher than it was at the market’s all-time high in August, right before the stock market’s pullback. This is a textbook demonstration of potential confusion arising when Wall Street follows a “heads I win, tails you lose” attitude.
A Happy Mood Versus a Solid Assessment of the Fundamentals
The contrarian-based worry about this sentiment situation is that the market is being held up more by a happy mood rather than a solid assessment of the fundamentals. As a result, the market can fall more precipitously when investors’ mood begins to sour, thus making it imperative to pay due attention to the fundamentals.
MarketWatch’s article warns readers about the precarious situation of Wall Street as it tended to rally after Larry Summers withdrew from selection as the next Federal Reserve chairman. The article warns about the “heads I win, tails you lose” attitude of the market, the volatility of the Hulbert Stock Newsletter Sentiment Index (HSNSI), and the importance of a solid assessment of the fundamentals over a happy mood. It further cautions buyers to beware as a negative outlook can descend fast and investors’ psychology tends to be highly fickle.