The good news illustrated in the above consumer sentiment chart going back to 1978 since the University of Michigan started releasing these reports, a reading below 60 has always been a precursor to improving consumer sentiment on the economy and their employment situation, the result of an improving stock market. On Monday, Mark Pender of Econoday stated in his Global Economics report:
“The availability of goods, and related inflation, appear to be factors for the US. Early May has seen some particular problems like shortages of infant formula and a spike in the prices for poultry and eggs due to an outbreak of avian flu. Gasoline prices are again on the rise. Although wages and benefits continue to increase, US consumers are concerned that higher prices will eat up the improvement in household incomes. There also may be a sense that the labor market isn't as favorable as it has been…..On the plus side in the report, inflation expectations are holding steady, at 5.4 percent for the year-ahead outlook and 3.0 percent for the 5-year outlook, the latter reading offering reassurance to the Fed that long-term inflation expectations, at least for now, remained anchored.“
Institutional managers have a higher degree of success than the lesser experienced investors in identifying buying or selling opportunities. If anything, the inexperienced investor crowd seems to have a knack for selling at the bottoms of market corrections and buying at near tops of cycles. As consumer sentiment has plunged to an eleven-year low, Warren Buffet has become a buyer. The Wall Street Journal reported today:
“The stock market’s selloff has been bad news for most investors. Not for Warren Buffett and his team. Mr. Buffett’s Berkshire Hathaway Inc. has used the slump as an opportunity to increase spending on stocks, deploying tens of billions of dollars the past couple of months after ending 2021 with a near-record cash pile.”
This is not to say the present-day concerns of inflation, the Ukraine war, supply chain disruptions, and rising interest rates are not real concerns. However, institutional investors are investing for the future and not present-day circumstances. The quote, “skate to where the puck is going, not to where it is,” applies to hockey and investing. If you believe the current recently developed state of the economy of rising inflation and interest rates, Ukraine war, etc.,, will be the same or worse several years from now, then, yes, sell everything. If on the other hand, as apparently Mr. Buffett believes, today is not indicative of the future, and these headwinds will dissipate, and today’s values are buying opportunities for future profits.
BTW: Hockey great Wayne Gretzky, who has been credited with this quote, never said it. It was his father, Walter Gretzky, who said, “Go to where the puck is going, not where it has been.”