A new survey by the Associated Press finds that most Americans think the stock market will not go up in 2014.
About 40% think that stocks will be just about where they are now at the end of 2014, and almost another 40% predict it will go down. Very few think it will crash, but the percentage of bulls is a dismal 14%. CNBC.com reported it here.
We certainly don’t disagree. Back in late October we published a newsletter saying basically the same thing (“Don’t expect a bull market in 2014”). Bullish sentiment was running high at the time, and the fact that popular thinking has changed so quickly to align with ours is somewhat unsettling. Crowds tend to be wrong.
But the poll had other questions that probed deeper into people’s thoughts. While almost 80% say they didn’t think market will go up, about 77% plan to invest as much, or more heavily, in the coming year. Only 22% plan to pull back.
It is easy to dismiss this blatant contradiction as another proof of how irrational people truly are. But these results may also show that people may be wiser than these answers reveal.
Most believe the market will not go up yet again in 2014, suggesting that they intuitively understand that stocks are in uncharted territory. As we showed in our newsletter, stocks had never before gone up 10 out of 11 consecutive years, as they did in the 2003-2013 period (2008, of course, was the exception). Expecting that 2014 would also be a positive year would be the same as expecting an outlier event even less likely than 2013’s unprecedented gain.
But while unlikely, a positive 2014 is not impossible. The US economy is undoubtedly picking up, and there are strong signs that Europe is finally leaving behind the never-ending crisis environment that plagued it for years. These are two powerful conditions that can propel the market higher still, even if central banks start to pull back on monetary stimulus.
So crowds are mad, but that doesn’t mean they are stupid. The contradictory results of the AP survey may actually suggest that they actually understand their limitations: their gut tells them the market may fall, but their heads tells them that they are often wrong. What to do, then?
The inevitable answer seems to be: bite the bullet and leave your chips on the table. Which is also what the majority of Wall Street strategists seem to be saying.
To us, the results of this poll mean that uncertainty is running high. The safest bet, therefore, is that both the general public and the professionals will change their minds often in the coming months. The conclusion is that volatility, long subdued, may raise its head again in 2014.