When There is a Universal Opinion, the Opposite Often Happens.

When I came into the industry about 30 years ago I unknowingly cold called a legendary icon.  The gentleman politely interrupted me partially through the presentation and gave me some unsolicited advice, advice that I believe is more poignant today than in years’ past.

The individual stated when everyone is doing something or there is only a universal opinion, the opposite often happens.  This belief is predicated upon the simple fact that if everyone knows something and has acted upon it, any nominal change in opinion or environment can have an outsized impact.

Fast forward today.  Yesterday a report by Lindsey Group LLC stated there are five stocks that have produced 63% of the return of the S & P 500.  These five stocks generated 50% of the increase in the NASDAQ which is comprised of 2,616 companies.   Furthermore the report indicated that 60% of NYSE listed shares are below their 200 day moving average.

Wow!  Talk about market bifurcation.  The five stocks responsible are Amazon, Google, Netflix, Facebook and Apple.

I have referenced past times when equities were this bifurcated, a bifurcation that ended poorly for those who owned the “must owned” stocks.

Speaking of a myopic narrative, the negative oil narrative is overwhelming, extrapolating today’s conditions into eternity.  Is this a function that no one remotely suggested the collapse of oil prices even as little as eight months ago?  Probably.

I believe today’s intense negative narrative is as strong as the bullish narrative seven years ago when all thought oil would reach $200 barrel by year’s end.  Similar to today, everyone extrapolated current conditions into eternity.

Change is the only constant.  What is different is the velocity of change predicated by some unexpected event, an event that history will regard as extraordinarily obvious.

What could change the oil narrative?

Could it be supply disruptions?  I think most will agree the Middle East is in virtual chaos, a chaos amplified by American regional allies openly questioning American strategy and commitment.  In years’ past such uncertainty would cause prices to surge.

Could it be that economics catches up with the oil producers?

Could it be stronger growth in the US?  What are the implications of fewest weekly jobless claims since 1973?  Will the Labor Participation Rate (LPR) finally start to rise as workers reenter the workforce?  (Note:  A strong argument can be made most of the drop in the jobless rate is the result of worker’s exiting the workforce). And then there is positive macroeconomic impact of record home prices.

No one can answer the question as to the oil narrative will change, hence the comfort in extrapolating today into eternity.  But referring back to the legendary icon who later became an early career mentor until his death in the early 1990s, when everyone knows something and has acted upon it, the odds of radical change rises exponentially when all least expect.

Last night the foreign markets were mixed.  London was up 0.14%, Paris up 0.38% and Frankfurt up 0.01%.  Japan was down 0.67% and Hang Sang down 1.06%.

The Dow should open quietly higher, partially predicated upon the strength of AMZN’s earnings.  Currently the stock is up about 18% or around $40 billion.  Let the myopic mania continue! The 10-year is off 2/32 to yield 2.27%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.