July Yes/No Market Survey Results

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July Yes/No Market Survey Results

Today we have the results of last week’s DataTrek “Yes/No Market Survey”.We had a great turnout for this one (thank you!), so here are a few details before we dig into the responses:

  • 12 questions in total, 10 posed as binary choices and 2 with multiple options.
  • Every question required a definitive answer – there was no option for “No Opinion/Don’t Know”. We also randomized potential responses and only fully completed surveys counted to the totals presented here.
  • We received a total of 268 unique responses. Most (79%) came from DataTrek readers. Thanks primarily to our friends at Zerohedge we had 57 responses from social media sources. We tracked social responses separately and where those differ materially from the DataTrek community we note that in this report.
  • The survey was open from Monday July 29th to Saturday August 3rd. Most replies came earlier in the week.

Here are the questions as posed, the breakdown of responses (highest response bolded) and our interpretation of the replies:

#1: Do you think the S&P 500 is within 1-2% of its highs for 2019?

  • No: 50.8% (135 votes)
  • Yes: 49.2% (133 votes)
  • Social media respondents were more inclined to think the market is at a top: 65% replied “Yes”.
  • The DataTrek community was slightly more bullish: 55% felt the S&P was not within 1-2% of its highs for the year.

Our take: a remarkably even result to start things off, with respondents pretty equally split on whether the S&P is done for the year.

#2: Do you think the Federal Reserve should be cutting interest rates?

  • No: 59.7% (160 votes)
  • Yes: 40.3% (108 votes)

Our take: this one caught us by surprise, because it clearly shows that respondents do not feel the Fed has made a sufficiently good case for rate cuts in 2019. Most of our replies came before Chair Powell’s Wednesday press conference, but given the garbled messaging there we assume this picture has not changed.

#3: Do you think either Emerging Markets or EAFE (developed Europe/Japan) equities will outperform the S&P 500 over the balance of 2019?

  • No, neither will outperform the S&P: 76.1% (204 votes)
  • Yes, the MSCI Emerging Markets Index will outperform the S&P: 11.9% (32 votes).
  • Yes, both EAFE and EM will outperform the S&P: 6.3% (17 votes)
  • Yes, the MSCI EAFE Index will outperform the S&P: 5.6% (15 votes)
  • Social media respondents were marginally more inclined to favor the S&P 500 (86.0%) than the entire survey population (76.1%)

Our take: even though our respondents were 50-50 on the S&P 500, they have clear and negative perspectives on non-US equities for the rest of the year.

#4: Do you think the US economy will enter a recession before the end of 2020?

  • No: 57.8% (155 votes)
  • Yes: 42.2% (113 votes)
  • DataTrek readers were more positive on the US economy (62% voting “No”) than social media respondents (58% voting “Yes”).

Our take: despite all the media chatter about the US tipping over into recession over the next 4 quarters, our survey takers don’t quite see it. Even social media respondents, typically a very bearish lot, couldn’t get to a two-thirds “Yes” vote here.

#5: Over the next 5 years will the US government force any American “Big Tech” company to divest a major asset or more completely break up its current business model?

  • Yes: 52.6% (141 votes)
  • No: 47.4% (127 votes)
  • DataTrek readers were essentially 50-50 on this question, while social media respondents were skewed 60-40 to “Yes”.

Our take: A late June 2019 DataTrek survey showed that respondents attributed some of the US government’s Big Tech scrutiny to posturing ahead of 2020 elections, but coin-flip odds of an actual break-up/large asset sale means investors see the possibility of real regulatory action.

#6: Will the yield on the US Treasury be below 2.0% at the end of 2019?

  • Yes: 61.9% (166 votes)
  • No: 38.1% (102 votes)

Our take: our survey period includes the latter part of last week when 10-year rates blew through 2%, but at the very least most respondents see this as the “new normal” for the rest of the year. Also worth noting: back in our March survey only 3% of respondents thought the 10-year would end the year with a sub-2.0% yield. How things change…

#7: Will the Federal Reserve cut interest rates more than twice in 2019?

  • No: 65.7% (176 votes)
  • Yes: 34.3% (92 votes)
  • DataTrek readers were even more strongly in the “No” camp, at 70.0%

Our take: another high-conviction response here, taken during a week when respondents knew the Fed would be cutting rates but they clearly feel this is a “two and done” rate cut cycle. Back in our March 2019 survey only 7.5% of respondents thought rates would be 50 bp lower at the end of 2019.

#8: Will the US and China reach a meaningful trade agreement before the 2020 Presidential elections?

  • No: 58.2% (156 votes)
  • Yes: 41.8% (112 votes)
  • While social media responses yielded 25% odds of a trade agreement, DataTrek reader responses themselves only rolled up to 46% odds – still less than 50/50.

Our take: Investors are slowly giving up on a trade deal, and back during our March 2019 survey 77% of respondents thought an agreement would happen in 2019. Now a majority think a deal is unlikely in the next 17 months.

#9: Do you expect the US dollar to generally rise or fall in value versus other major global currencies between now and year-end?

  • Rise: 65.3% (175 votes)
  • Fall: 34.7% (93 votes)

Our take: with the dollar already essentially at 2-year highs, respondents think the trend is to still-stronger levels for the greenback.

#10: Do you think any of these major S&P sectors will outperform the broader market (i.e. the S&P 500)? (Check all that apply):

  • Technology: 31% of total votes (132 of 420)
  • Health Care: 17% (72 of 420)
  • Communication Services: 15% (69 of 420)
  • Consumer Discretionary: 15% (61 of 420)
  • Financials: 13% (56 of 420)
  • None: 7% (30 of 420)

Our take: Technology was the favorite back in our March survey as well, but second place back then went to Financials (now in last). Communication Services is now much more in favor than in March, and Health Care is holding its own despite a terrible YTD performance.

#11: Will US Small Caps outperform Large Caps through the end of 2019?

  • No: 69.4% (186 votes)
  • Yes: 30.6% (82 votes)

Our take: the third high-conviction call from this survey, showing respondents’ strong belief that the recent run of small cap underperformance is set to continue.

#12: Will gold perform better than the S&P 500 through the rest of 2019?

  • Yes: 57.5% (154 votes)
  • No: 42.5% (114 votes)
  • DataTrek readers were pretty evenly split on gold’s prospects for the rest of the year (46% bullish/54% bearish) but social media respondents were much more inclined to favor the yellow metal (68% bullish).

Our take: we were a little surprised that given gold’s recent move and all the buzz around it that the responses here were essentially 50-50.

Summing up our findings into 3 takeaways:

  • Long term interest rates remain the linchpin issue for US large cap equities. 

    Early in the year DataTrek survey respondents were putting faith in a trade deal and a do-nothing Fed, which would cause long rates to rise modestly (bad for stocks) but boost global growth and earnings (the offsetting positive).

    Now, trade deal hopes are basically dead but lower rates support valuations. Earnings growth is zero, so US stocks will ride a PE expansion wave as global rates continue to drop. Unless, of course, a much stronger dollar hurts earnings and/or global growth slows enough to take a chunk out of 2020 earnings expectations.
  • Investors are reluctant to bottom feed in lagging asset classes over the balance of 2019.

    Back in March 32% of our survey respondents liked Emerging Markets over the S&P 500; now that number is 12%. We did not ask about US small caps back then, but less than a third of survey takers think they will play catch up over the rest of the year.
  • Technology remains a Teflon sector. 

    When we saw that +50% of respondents thought the US government would eventually force some sort of Big Tech breakup/large asset sale, we assumed it would hurt investor sentiment on Apple,/Microsoft (both “Technology”), Amazon (Consumer Discretionary) and Google/Facebook (Comm Services). 

    Yet all three groups received a decent number of votes in question #10.

Thank you again to all of you who took the survey!