Everyone hates stocks, huh?

To use the word ‘hate’ has negative connotations. I hate the word. That $44bn has left equity-focused ETFs in just over a month, with much of that capital now in Gold-focused ETFs, Gold miners or just languishing as plain cash, is understandably interpreted in terms of market sentiment, yet I’m not convinced this is a negative sentiment thing.  Things aren’t quite aligned to the ‘safe haven seeking’ state of affairs. The impressive recovery in Gold and other commodities, together with elevated rebounds in precious metals miners in 2016 has surely been driven by speculation for the most part, with the worst for the commodity and related stocks supposedly being behind us. In this sense, the word ‘hate’ must be interpreted carefully.

Precious metals have become more competitive with a spate of dividend cuts and suspensions in the equity space conspiring with historically low, even negative interest rates in fixed income. This of course has pushed some income-seeking investors into the risky world of high yield (distressed) debt (as opposed to their normally safe bets), but in some cases it’s also given commodity markets a boost. Sure, Gold doesn’t pay dividends or interest, but what does these days? Neither will Gold deliver nasty surprises in the form of profit warnings. So some traditional equity lovers have gone big on the commodities space. Chinese retail investors are a case in point, inflating prices after being shut out of other opportunities by government intervention.

On the back of this type of action, you’ll always have the speculators looking for momentum opportunities. With Gold and Oil posting solid performances from multi-year lows in the first half of the year, they’ve both provided arguably better trading conditions than volatile equities. Those equities that aren’t too volatile – the defensive, non-cyclicals – are now either at or near overbought. Look who’s managed fresh all time highs on the UK 100 this year – a who’s who of steady Eddies yielding 2-4%. Everyone’s in the market, so where to go next? To me it’s pretty simple – commodities. Not that I think this is a good or a bad thing, just a thing!

So it’s not so much ‘everyone hates stocks’ as ‘everyone loves other stuff’ right now. People don’t appear to be fearful, they’re seeking growth  opportunities. Yet that brings us to another thing. The fact that everyone’s speculating on commodities.

When everyone’s doing something is usually when it’s time to take the contrarian view. That’s why I’m encouraged by the UK’s UK 100 index holding firm around the mid 6100s, despite a stronger US Dollar stemming from some surprisingly hawkish US Fed rhetoric. Note too that Dollar strength should also be pressing on commodities

The US Dow Jones is also resilient around the neckline of what could be a 2-month bearish head & shoulders reversal from its April 12-month highs. There really is so much on the wires about how everyone’s eschewing stocks right now, it could well be time to go bullish on them once more. If Crude prices – one of the best global growth confidence indicators out there – can bed back in above $50, what does that imply for equities? Everyone hates stocks, huh?

If you want to see just how much everyone hates stocks, you may want to check out these 5 companies , companies no one currently wants to sell and quite a few want to buy. There’s not a commodity in sight.

Augustin Eden, Research Analyst (19 May)