A bull market is in full swing – and most of us are in denial


Sucker rally! Four months after the stock market began to recover from last year’s carnage, skeptics are still piling up.

Bull market doubters relentlessly prey on bogeymen. There are the old standbys: the Fed and its rate hikes, inflation and recession.

There are also some newfangled distractions: Chinese spy balloons, anyone? The noise indicates that we are, in fact, in the middle of a real bull market.

It’s part of a routine behavior phenomenon I’ve long termed the “pessimism of disbelief.” It forms the upward slope of bull markets – parallel to but different from the “wall of worry” that bull markets climb.

Let me explain.

Bear markets get brutal with depth, length or, as in 2022, the sheer magnitude of fears grating on investors’ nerves.

The resulting scars create a hyperfocus on negatives and dismiss emerging positives as fleeting or illusory.

This pessimism of disbelief – or PoD for short – starts with each new bull market and lasts for about a third of its full duration. At this point, PoD has infected most investors.

This pessimism of disbelief – or PoD for short – starts with each new bull market and lasts for about a third of its full duration.
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A survey by the Bank of America shows that two-thirds of global fund managers view stocks’ post-October rally as a bear market rally, citing fears of inflation, geopolitics and recession.

A survey of investor expectations in the Eurozone is equally rigorous.

The American Association of Individual Investors’ weekly poll shows an increase in bullishness, but still well below the long-term average.

PoD’s real telling is the “yes, but” objection. Yes, inflation slowed again in January, but less than in December.

Yes, the economic data seems resilient and stocks rose, but that only brings more inflation and the Fed. Sure, improved supply chains have lowered freight rates, but increased inventory means rising warehouse costs. Yes, China has reopened, but it is pushing oil prices skyward.

Disbelief is the first step of psychological denial and a form of grief. While the classic “wall of worry” is simple pessimism about the future, PoD goes a bit further – it’s an anchoring in the past and a form of what behavior experts call “confirmation bias” – an outright denial of manifest progress and better-than-expected outcomes .

Meanwhile, in this column on Christmas Day, I told you that perfection is not necessary for rising stocks. They simply need reality to exceed pre-priced expectations. If bad news isn’t bad enough, stocks are rising. Happens in every new bull market ever.

Do you remember 2020? The shares bottomed out on March 23. Then PoD started.

Most called the ensuing rally a Fed-driven sugar high that would soon be killed by another COVID flare-up, government interference, supply chain chaos or a debt implosion.

Remember the bottom of 2009 and the ensuing double-dip talk, the fear of Alt-A mortgages defaulting and muni bonds falling?

Oldies like me remember the rising unemployment, recession, and layoffs at automakers long after the October 1974 low. Or the late 1982 concerns about tax hikes and sluggish profits. Not only did stocks rise in the bleak early months of those bull markets, they rose.

Since 1925, the S&P 500 median returns to 22.8% six months after the bear market trough.

Twelve months? 38.0%. Those early gains are crucial. They are compiled over the life of a bull market – about five years on average.

Be careful of “Yes, but” – yours or someone else’s. Make sure they are new concerns and not old, pre-priced ones.

Instead, listen to the wisdom of market legend Sir John Templeton: “Bull markets are born from pessimism, grow from skepticism, mature from optimism and die from euphoria.”

Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time company New York Times bestselling author and regular columnist in 17 countries worldwide.

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