Big Money Poll: Bears Rise to a Two-Decade-Plus High By Nicholas Jasinski Updated Oct. 26, 2019 1:55 am ET / Original Oct. 25, 2019 7:24 pm ET Order Reprints Print Article Illustration by Jacob Thomas Text size After a big year for U.S. stocks—make that a big 10 years—America’s money managers see trouble ahead for investors. Blame it on the market’s lofty valuation, a muddled economic outlook, or the increasingly fractious political landscape, any of which could stifle stocks’ advance in coming months. Whatever the case, only 27% of money managers responding to Barron’s fall 2019 Big Money Poll call themselves bullish about the market’s prospects for the next 12 months, down from 49% in our spring survey and 56% a year ago. The latest reading is the lowest percentage of bulls in more than 20 years. The Big Money bears’ ranks, too, have swelled to levels unseen since the mid-1990s. With major U.S. equity indexes trading within a few points of their July highs, our fall poll finds 31% of respondents bearish and 42% neutral. “We see more and more of the highest-quality names trading at valuations that suggest there may be as much risk as opportunity,” says Charles Crane, principal at Douglass Winthrop Advisors in New York, which oversees $3 billion. “We can’t ignore the fact that the S&P 500 is up 20%-plus, year to date. It is unlikely that it will repeat that kind of trajectory in 2020.” The Dow Jones Industrial Average has climbed 15.6% this year, to 26,958; the tech-heavy Nasdaq Composite has gained 24.2%, to 8243. At a recent 3023, the S&P 500 is trading for 16.8 times the next year’s profits, near the high end of historical levels. The Big Money pros see stock prices changing little through the middle of next year. Based on their mean predictions, the S&P 500 index will fall about 2% and the Nasdaq will relinquish under 5%, even as the Dow industrials stay flat. Barron’s conducts the Big Money Poll twice a year, in the spring and fall, with help from Beta Research in Syosset, N.Y. The latest survey was emailed to investors in late September; stocks are little changed since then. The fall poll drew responses from 134 money managers across the country. Barron’sdividedthe fall Big Money Poll into two parts—one aimed at soliciting investors’ views about the market and the economy, and the other at gauging their outlook on politics and policies likely to shape the investment landscape ahead of the November 2020 election. “Sometimes, I feel like we’re at the mercy of tweets and breaking news from Washington, and switching gears on trade and foreign policy,” says Michael Frazier, president and CEO of Bedell Frazier Investment Counselling. “It’s a tough environment to navigate right now. The risk/reward isn’t all that compelling.” As candidates jockey for position, investors are forced to weigh a plethora of political statements and policy proposals, some unfriendly to the financial markets. “There is a lot of angst,” says Frazier, whose San Francisco Bay Area–based firm manages about $500 million. “Politics are really playing a much bigger role than in past market cycles. There’s such a stark division between political parties that it is weighing on the psychology of where the country is and where the economy and the market are.” Just as they have grown more pessimistic about the market’s prospects, U.S. money managers have soured on President Donald Trump’s performance in office over the past year. Two-thirds of poll respondents gave the president a grade of C or worse in the fall survey. A year ago, half of Big Money managers believed that Trump deserved a grade of A or B. Nonetheless, the president is the preferred candidate of 42% of Big Money managers in the 2020 presidential election, with runner-up Joe Biden the pick of 25%. Sixty-two percent of Big Money investors expect Trump to win re-election next year. “Sometimes, I feel like we’re at the mercy of tweets and breaking news from Washington, and switching gears on trade and foreign policy.” —Michael Frazier While 61% of our respondents prefer former Vice President Biden over his Democratic rivals, 64% see Massachusetts Sen. Elizabeth Warren emerging from the Democratic primary as the party’s nominee. A Warren presidency also inspires the most fear among Big Money investors. “Elizabeth Warren is not shy about pushing for a profound change in the economic structure,” says Scott Horsburgh, president and portfolio manager at Provident Investment Management. “Anytime you hear talk about profound change, that introduces considerable uncertainty, and [asset] values go down because of that uncertainty.” A whopping 99% of money managers expect the market to react negatively if Warren wins the election. Close to two-thirds predict a positive reaction from a Biden election victory, while 84% expect the market to go up if Trump wins another term. Horsburgh, whose Novi, Mich.–based firm oversees about $700 million in assets, sees an impeachment proceeding weakening the president’s electoral odds, even if he isn’t removed from office. But the money manager is less optimistic about the electoral chances of Democratic front-runner Biden, considered a political moderate. He cites an enthusiasm gap confronting Biden, and a lesser fund-raising haul than other leading candidates, along with the potential for political damage from unfavorable attention on his family arising from the Trump impeachment probe. That leaves progressives Warren and Sen. Bernie Sanders as next in the Democratic Party polls. “The candidates immediately behind Biden aren’t friendly to business and capital,” says Horsburgh. “We’ve had to give greater weight to more significantly negative outcomes for the business environment than we would have given six months ago.” Half of the Big Money investorsbelieve that the market is underestimating the chance of a Democratic candidate winning the 2020 election. “The market is vulnerable to certain Democratic candidates who won’t necessarily have policies that Wall Street will like,” says Frazier. “Health care, financials, and energy—a lot of sectors are at risk depending on whether Elizabeth Warren or Bernie Sanders [are elected]. I don’t think the market is adequately pricing that in at all.” Sanders has proposed a 0.5% tax on stock trades, a 0.1% levy on bond trades, and a 0.005% fee on derivatives trades. Warren’s proposals include reintroducing Glass-Steagall legislation separating commercial and investment banking and eliminating the “carried-interest loophole” favored by many in the hedge fund and private-equity industry. Big Money investors are with her on the latter point, at least: 77% agree that general partners’ share of investment-fund profits should be taxed at the same rate as salary and wage income, not at the lower capital-gains rate. Poll respondents’ views on the health of the U.S. economy have remained roughly steady since the spring. A plurality of money managers in our 2019 surveys predicted 2% growth in real gross domestic product in the following year About a third see the next U.S. recession arriving in 2020, but nearly two-thirds don’t expect the economy to contract until 2021, or later. Crane sees a shallow recession coming as soon as the first half of next year. “I’m just looking at the odds right now,” he says. “We are 11 years into an [economic] expansion; it’s uncharted territory. There is an awful lot of stuff that could go wrong. I’m not saying we slip into a rip-roaring kind of recession that makes everything fall apart, but could we slip into negative territory for a quarter or two? Sure.” Some money managers see Trump pulling out all the stops to keep the market and economy afloat in the lead-up to the 2020 election, pushing further fiscal stimulus and increasing the pressure on the Federal Reserve and its chairman, Jerome Powell, to continue lowering interest rates. But with the market near a high, not all Big Money investors are convinced that will be enough to keep stocks rising. “The White House and Republicans in general are going to do everything they can to keep this market elevated and keep this economy growing at a decent clip,” says Frazier. “But the rate of growth is slowing, and the stock market is pricing in a lot of good stuff already.” In follow-up conversationsto the Big Money Poll, respondents frequently cited trade policy as a lingering worry and damper on stock performance. Money managers are evenly split on the merits of Trump’s tariff policy toward China, and equally divided over when the current U.S.-China trade conflict might end. Forty percent see a resolution before the 2020 election in November, while another 40% see the trade war continuing for years. Joel Tillinghast, a veteran fund manager at Fidelity Investments, sees the possibility of more narrow deals over the coming year on certain elements of trade—akin to the October “Phase One” deal that saw the U.S. delay planned tariff increases and China agree to import more U.S. agricultural products. But when it comes to more fundamental disagreements around future technologies, Tillinghast sees little common ground. “We will continue to have mini-deals,” he says. “The president needs a win, even if it’s a small one. But issues of intellectual property, especially around 5G and artificial intelligence—those aren’t going away.” “We are 11 years into an [economic] expansion; it’s uncharted territory. There is an awful lot of stuff that could go wrong.” —Charles Crane Trump and his Chinese counterpart, President Xi Jinping, are scheduled to meet in Chile next month, where the agreement could be signed. Tillinghast sees reasons to be bullish in the lead-up to the presidential election next year. “Most other presidents have taken unemployment and maybe inflation as their measures of success,” says Tillinghast. “Trump has said that he uses the stock market as an indicator of how he’s doing.” Tillinghast sees lower interest rates directly boosting some parts of the economy, such as the housing market, but ultimately he thinks they’ll have a greater effect on stock valuations. Future earnings are worth more when discounted back to the present at a lower rate; dividend-paying companies see greater demand from yield-seeking investors; and lower borrowing costs make share buybacks more affordable for companies. Plus, low rates make it easier for the U.S. government to continue running trillion-dollar deficits and to reintroduce fiscal stimulus to the economy. Finally, lower interest rates could also have the effect of devaluing the dollar, making U.S. exports more competitive. That might help narrow the trade deficit, another priority of the nation’s chief executive. Those tailwinds could keep equities rising in 2020, Tillinghast says. His midyear target for the S&P 500 is 3600—about 19% above the current level, and the highest forecast in our poll. Tillinghast also thinks that America could follow Japan and Europe down the path to negative-yielding government bonds—a view at odds with those of 80% of Big Money respondents. “President Trump wants to get re-elected, and he has suggested that he thinks zero or negative interest rates are a good idea,” says Tillinghast. “I’m not sure that I agree with that in full, but he usually gets what he wants.” The Federal Reserve is widely expected to lower interest rates again at the end of October. The top holding in Tillinghast’s $28.5 billion Fidelity Low-Priced Stock fund (ticker: FLPSX) is UnitedHealth Group(UNH). He notes that the health insurer’s business would face “existential risk” if proposed Medicare for All plans become reality, but that it is the type of strong and steady earnings grower that can outperform in the current market environment. Big Money investors cited health-care stocks as most vulnerable to election-related risk, with 53% of respondents concerned about the potential impact, no matter which candidate wins in November 2020. “Health care is going to be a hot-button topic for both sides of the ballot,” says Crane. “You have an incumbent who has made it clear that rewriting the [Affordable Care Act] is a high priority. You have candidates on the Democratic side who want to not necessarily throw the entire book out but rewrite parts of it.…It’s a big, easy target to talk about in the context of an election battle.” “President Trump wants to get re-elected, and he has suggested that he thinks zero or negative interest rates are a good idea.” —Joel Tillinghast Sanders and Warren have both endorsed a broad overhaul of the U.S. health-care system that would essentially eliminate the need for private insurers. Other candidates, including Biden, Mayor Pete Buttigieg, and Sen. Kamala Harris, support expanding a public option to more people while still allowing them to keep their private insurance if they desire. Trump and congressional Republicans have put forward a variety of ACA-replacement plans in recent years, featuring varying levels of federal and state involvement in providing or subsidizing health coverage for groups like those with high-cost illnesses or low incomes. READ MORE ABOUT INVESTING IN 2020 U.S. Stocks Look Richly Priced,Barron’sReaders Say Stocks Worth Buying Regardless of Who Wins the White House Investors have begun to recognize the threat of disruption coming for health care, and that has kept related shares from participating in 2019’s market rally. The S&P 500 health-care sector has been the second-worst performer this year, ahead of only energy shares, which have been dragged down by plummeting oil prices. But Frazier notes that, even if a Democrat endorsing Medicare for All wins the White House in 2020, getting such a policy through Congress is far from assured. “Health care is politically sensitive, but we think it is pricing in a lot of the negatives already, unlike other areas,” Frazier says. Frazier likes FedEx stock (FDX), which he also sees as pricing in a variety of negative factors, including slowing global growth and trade-war concerns. At current levels, however, the stock is trading at an attractive entry point, he says. Crane advises avoiding index investing and “emphasizing the stock part and not the market part” over the coming year. He’s bullish on Berkshire Hathaway (BRK.B), noting that its shares haven’t fully participated in the market’s rise, returning just 3.7% this year, even though the value of Berkshire’s businesses and individual stock holdings has continued to grow. He also sees the company, controlled by Warren Buffett, as a good, diversified play for unsteady times. “There are so many different headlines to watch right now,” says Crane. “Brexit, trade, the economy, elections. Trying to predict them all correctly is like trying to predict what the weather will be like in November 2020. We might get things directionally correct, but getting them exactly right is a matter of luck more than skill.” Based on the Big Money Poll, the near-term forecast is a lot less confounding: Cloudy, with a growing chance of storms. Write toNicholas Jasinski atnicholas.jasinski@barrons.com https://www.barrons.com/articles/th...d-roil-stocks-heres-how-to-invest-51572050238
it's explainable... the market is like a pyramid, with the true smart money on the top with the most control.. but the sentiment poll is like democracy, every reply is worth 1 vote, not weighted with the account size.... and this is why the saying 'market always causes pain to the most people', and also why sentiment is such a great contrarian indicator. the current situation is this - - trading volume is very low, indicating great chip control by the true smart money. along side, corporations are buying, central banks are buying... the float is limited; - meanwhile managers have too much cash; individuals on main street have too much cash. - and fundamentally stocks are dirt cheap... and so what if there is a mild recession.. DOW should be at 40000 right now based on the current earnings. put 2 and 2 together you tell me whats gonna happen lol.... the next leg up will knock a lot of socks off lol.
I missed my calling. I should be a Nicholas Jasinski and just spew stats to make it seem like I know something, and get paid for it..
Bears likely feeding this market by shorting and getting slaughtered all the way up, it's when they all flip sides and figure stop fighting it, it's going up for ever ever the direction will change. If they have any money left ofcourse.