Something popped into my head this morning: "yellow journalism." I can still see my history teacher's beard. I sat in class wondering why on earth I ever had to memorize it. But things really do have a way of coming full circle.
When I searched the word, it dawned on me that there was "fake news" in the 19th century. It was called yellow journalism – the term for journalism and associated newspapers that present little or no legitimate well-researched news while instead using eye-catching headlines for increased sales. Frank Luther Mott, who won the Pulitzer in 1939 for his history of magazines, identifies yellow journalism based on five characteristics:
- scare headlines in huge print, often of minor news
- lavish use of pictures, or imaginary drawings
- use of faked interviews, misleading headlines, pseudoscience, and a parade of false learning from so-called experts
- emphasis on full-color Sunday supplements, usually with comic strips
- dramatic sympathy with the "underdog" against the system.
Don't get me wrong – news is essential, and some of it is legitimate. But if it seems like I've been relentlessly beating up on the news media lately, it’s because I have. And there's a reason: they deserve it. The investing "headline risk" has been huge for years now. Normal-level stories get inflated into life-or-death style fear campaigns. And small whispers of hopes of good news can set the market on a major bull run. Two examples:
- The trade war story vaporized billions in equity value in May. There's plenty of opinion on why the trade war will derail life as we know it. But if you want to find another view, you really need to dig. I found one here that has echoes of my thoughts – a media overblown situation, nonetheless with the potential for a real roar, but for now more like a purr…
- Federal Reserve Chairman Jerome Powell basically said that the Fed is willing to do whatever it takes to stimulate growth. This rippled into rumors of a rate cut, which sent markets soaring last week, and so far, they haven't looked back.
"Sell in May then go away." Apparently, everyone got the memo, because the market had its worst May in a while. Echoing December, exchange-traded fund (ETF) selling spiked at the recent trough of the market – a classic sign that mom and pop sell out at the bottom. It was the largest monthly outflow in history for equity ETFs, which reached a record $19 billion, according to a State Street Global Advisors Report.
As money flew out of stocks, they ran into fixed income ETFs. Matthew Bartolini said, "Global equities were tweeted into a tailspin." I couldn't have said it better myself for the past few weeks. Financials, tech, industrials, materials, and energy saw the biggest ETF outflows.
But my, what a difference a day makes! That was the week before last, and things changed last week. My data says that smart money isn't selling. In fact, we saw verifiable buying. First, let's look at the sector table below:
That is juice! The materials sector index exploded more than 8% in a week! Semiconductors saw a pop after weeks of blood. Value and blue chips outperformed, but growth still surged. What happened under the surface?
Our data showed buying. We had tons of "trips" (a stock tripping our model for big volume and volatility but not necessarily making a buy or sell signal). This came with big up days after many down days and a falling ratio. We examined what that might mean for the near future, and it was bullish. Check the report here.
The bears are out, but I see a different story. Many growth stocks are showing buying ... that's bullish. The information technology sector is on sale. Many fantastic stocks got hosed in May. The technical distribution almost pushed the sector down to number two in terms of top-rated sectors. The utilities sector is close, with weak fundamentals and strong technicals. Info tech is the opposite.
U.S. equities are the place to be. Global equity markets face much uncertainty, but the U.S. is the oasis. We have a strong dollar, strong sales and earnings growth, profits, low taxes, and a strong economy.
Aristotle said, "It is during our darkest moments that we must focus to see the light." When the market gets bearish and the news makes you sick, it's probably a good time to focus on data and get your shopping lists ready. I mean, it's Aristotle!
The Bottom Line
We (Mapsignals) continue to be bullish on U.S. equities in the long term, and we see any pullback as a buying opportunity. We expect unusual selling to slow in the coming weeks, thus creating a buying opportunity.
Disclosure: The author holds no positions in any stocks mentioned at the time of publication.