Investing Update: Why Sentiment Matters

What I'm buying, selling & watching

Aug 05, 2023

July saw the Dow have a 13 day winning streak to close out the month. It also saw the S&P 500 complete its 5th straight positive month.

Through July, the S&P 500 is off to its 10th best start ever.

Meanwhile this is the Nasdaq’s best start to a year since the Nasdaq began in 1999. And it isn’t even close. 2023 has been an outlier so far through July.

July was the best month for banks in 7 years. 89% of the stocks in the S&P 500 have traded above their 50-day moving average. It isn’t just the big tech stocks, magnificent seven or big 10 or whatever they’re being labeled as. The rally has broadened out and the other 490 stocks in the S&P 500 have been rising.

Michael Batnick made a great point this week as well on fixed income. He said that 80% of fixed income is yielding over 4%. Soon to be 100%. I didn’t realize that but that’s really interesting. How long has it been since that happened?

There is a lot good happening right now in the stock market and in fixed income. The same can be said about the economy. Quite a contrast with how things looked to start the year. As we enter the slower months of the year it will be interesting to see if everything can continue to hold up and thrive like they have.

Temper August Expectations

As August begins, my expectations are quite tempered. We now enter the most bearish time of year. We’ve already seen the S&P 500 dip 2.42% and Nasdaq 3.05% to start the month. August and September are historically the most underperforming months of the year. As Ryan Detrick notes, this is true if you go back to 1950, 20 years and 10 years.

As readers of Spilled Coffee know, I have made mention of the presidential election cycle numerous times. That also enters a seasonally weak period as well.

Tom Lee who has been one the biggest bulls on the street with the second highest year-end price targets of 4,825 for the S&P 500, also warned of August on his recent CNBC appearance.

We’re in a period where we’re going to be nervous about good news.
August feels like it could be pretty messy.
I think it’s very possible that we could have a pretty painful drawdown.

There are times where the stock market needs a breather. We may be entering that stretch where things need a break. And you can’t complain when the S&P 500 is up 17.10% YTD and the Nasdaq is up 33.91% YTD.

Sometimes You Just Miss It

Many investors missed this quick move higher. We knew everyone was extremely bearish and didn’t think the market would be higher in 2023. Sometimes you just miss it. It can happen with individual stocks as well as the overall stock market. It’s why staying invested is still the best playbook.

If you’re someone that did miss this move and still think the market goes much lower from here you have to understand this from Callie Cox. Rarely do big drops of 20% plus happen outside of recessions. And the possibility of a recession has come and gone. You’re now essentially betting on a black swan type event happening. Trying to time the market is tough. I prefer just to stay invested and continue to buy.

Record Low Unemployment By State

There are so many people that still are shocked that the U.S. avoided a recession. It’s really quite simple. You can’t get a full on recession when nobody is losing their jobs and jobs are available all over the place. Look at how many states are at record low or within 0.1% from a record low unemployment rate.

Why Sentiment Matters

At times I wonder why investors follow and care so much about sentiment readings. I mean isn’t it just a reactionary number to what’s currently happening in the economy and stock market? It’s almost too simple of a measurement but is it actually forecasting what’s to come in the stock market?

I love this chart that shows the consumer sentiment index and the subsequent 12-month S&P 500 returns. As you can see when stocks bottomed last October, consumer sentiment made an all-time low. Stocks bottomed when consumer sentiment bottomed.

Another sentiment that is watched even more closely is investor sentiment. This shows just how bullish or bearish investors are and then the spread. Too high or too low one way or another usually raises a red flag. It’s a tool to use in your reading for what the possible outlook for the stock market might be.

Right now that red flag is starting to slowly raise up. The bullish indicator is unusually high and nearing the 2021 peak. On the other side, the bearish indicator is at the lowest number in over two years. That’s the highest spread of bulls and bears since August 2021. This also goes into why I would not be surprised to see August be a bit of a down month.

Moves I’ve Made

S&P 500 Index As the S&P 500 came off its worst two day stretch since April, I made my monthly contribution to my S&P 500 index holding on Thursday.

Uber UBER 0.00%↑ While a friend and I were talking last week, he asked a hypothetical question to me. If you were to buy one stock right now, what would it be? A lot of names bounced around in my head. But one stood out and I came to a clear conclusion, Uber.

As readers of Spilled Coffee know, Uber is one of my biggest holdings. Last month as I went over all my stocks Uber stood out to me as still being the most undervalued and misunderstood stock in my opinion. Even after the big rally it has had, up 78% YTD. For Uber to still be under $100 billion in market cap though says it’s still cheap and undervalued to me. Just compare them to the companies valued above them! To me, it just might be that simple.

You can read the last three buys I’ve made in Uber and why in my Investing Updates below.

9/17/2022 Investing Update: Peak Uncertainty Bought at $31.25.
7/2/2022 Investing Update: My 2nd Half Game Plan Bought at $20. Wish I would have bought a truckload more!
5/7/2022 Investing Update: Where Do We Go From Here? Bought at $25.

I started buying Uber at the onset of the pandemic in the low 20s and have continued to buy since. This week I added more shares to my position at $48.75.

Since it reported earnings this week, the stock has been down, up and kind of all over the place. I really liked the quarter and what leadership is doing. There really was nothing that stood out to me as being a glaring concern. They reported their first-ever quarter with profitability. Here are some of the breakdowns from earnings.

Uber CEO Dara Khosrowshahi said the plan is now to be profitable every quarter. I think in time it will be added to the S&P 500 once it clears four straight quarters of net gap income. I love the move deeper into the ads business. That is a big growth driver but I also think the next sleeping sector of big growth for Uber is their freight business. All these positives, while their one competitor Lyft just continues to fade away and no longer is really any threat to them.

Josh Brown also wrote a piece this week, X will never be the “Everything App” but Uber might about his thoughts on Uber. He goes quite in depth and brings up some other interesting points on why he likes the stock moving forward as well.

I don’t feel there are many companies with a profile like Uber. It has a bright outlook of growth, is already a popular verb, it’s loved by users, now is profitable, soon will have S&P 500 inclusion and the stock is still undervalued. I’m very long Uber and continue to be. If there are any big market selloffs, this will be among the first positions I add more to.

The Coffee Table ☕

Nick Maggiulli had a great post called The Return on Hassle Spectrum. I had wrote a similar post called Return on Hassle: Putting an hourly rate on your time last year. Nick approached it from an investing angle and I approached from more from a personal life angle. A great piece by Nick. I liked this line from him, “Why you need to consider the time/work needed for an investment in addition to its expected return.” He also shared this great chart that I enjoyed.

One of the harder things for parents is talking to their kids about money. We have just started this with our kids. I found this to be a good article. Picked up a tip and thought of a great idea from it. A nice short and easy reading post by Ann. Talking to Your Kids About Money
With as busy as the airlines and travel have been, it’s still not a bad time to book a flight based on fares. Prices are below 2022 but a long way from where they were pre pandemic.

For those who have asked if I will be attending Future Proof again this year, I unfortunately will not make it this year. I will be in Buffalo for the Buffalo Bills home opener this year with my Dad. Super stoked for that. If you’re considering Future Proof and haven’t been, just go. You will really enjoy it. They have some great speakers lined up who I know and will be worth the listen. I had an awesome time last year and plan on being back next year.

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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion. Do your own research.