“Everyone Has a Plan…”: Investor Survey Results

“Everyone has a plan until they get punched in the face.” That piece of wisdom comes either from Mike Tyson or Joe Louis. It doesn’t really matter who said it; it’s true.

My father had a similar saying: “Never trust a man that hasn’t been punched in the mouth at least once.” In my youth I attended years of martial arts classes in an inner city New York gym so I could become trustworthy and uphold the family tradition.

After today’s haymaker to the portfolio, it would be fair to say that markets have passed my dad’s challenge but remain subject to the Tyson/Louis test: will investors abandon their plan? That would be easy enough to do, especially after the easy rounds of the last many years. US equities may be 9-0 since 2009, but in the 2018 bout we are certainly behind on points.

Last week we ran an investor sentiment survey that over 150 of you and your fellow DataTrek members completed, and in the answers sits a collective “Plan”. Here is a four-point summary of what you said:

#1. The current volatility comes as no surprise. We asked where you thought US equities (S&P 500) would bottom in 2018 relative to year-end 2017. Over half of you (53%) said “Down 10-20%”. Even with today’s selloff we’re only down 3.5% on the year, so we have a ways to go yet.

Takeaway: the DataTrek community will be waiting for a larger pullback before buying any dip. Today’s market action says you are not alone in that sentiment.

#2. The current investment environment still allows for gains over the remainder of 2018. Some 45% of respondents believe US stocks will rise at least 5% from Q1 2018 closing levels. A further 31% believe US equities will close 2018 somewhere between +5% and -5% of last Thursday’s Q1 close. (Reminder: the S&P 500 closed Q1 2018 down 1.2%.)

Takeaway: as a group you believe US equities can still either generate modest gains for 2018 or at least not produce large losses for the year.

#3. You favor US large cap Financials and Emerging Market equities but are split on Technology. Almost a third (29%) of respondents called out Financials as their choice to outperform all other major sectors, the most of any industry group we included in the survey. While large cap Tech came in at #2, with 21% of the votes, 25% of respondents said it was their choice for the group most likely to underperform. Emerging Market equities were the clear winner for the asset class most likely to outperform (32% of the votes).

Takeaway: as a group, survey respondents believe strongly that long term interest rates will rise in 2018, most likely to 3.00% - 3.25%. That clearly informs the strong preference for Financials. Emerging Markets, with their overweight on global tech, is a gutsy call given recent volatility. Our respondents have not lost their courage, that’s for sure…

#4. The largest macro risk factor for US stocks you cited was “Political events in Washington DC”, which came ahead of Chinese/European tariff talks, a Fed policy mistake, interest rates/inflation and other potential problems.

Key takeaway: if you want to worry about something or justify selling down your stock exposure right now, this is it. US equities have been choppy thus far in 2018 due to tariff/trade issues and interest rates/Fed policy.

Those are not, however, what worries our respondents most. That prize goes to general political headline risk. We’ve seen dribs and drabs of those headlines in 2018 (e.g. numerous staff changes in the West Wing), but not to the scope of tariffs/trade, for example. A serious political crisis (fill in your own ideas on that) is a clear risk factor, and not one we’ve yet had to face.