June 11, 2019

A long-forgotten phrase popped into my head this morning: “Yellow dog journalism.” I can still see my history teacher’s beard when he taught us that term. I sat in class wondering why on earth I ever had to memorize it. But things really do have a way of coming full circle. When I searched out the origin of the term, it dawned on me that there was Fake News in the 19th century. It was called “yellow dog journalism, defined as “the term for journalism and associated newspapers that present little or no legitimate well-researched news while instead using eye-catching headlines for increased sales.”

Frank Luther Mott, a 1939 Pulitzer Prize winner for his history of magazines identifies yellow journalism based on these five characteristics:

1. Scare headlines in huge print, often with minor news events.
2. Lavish use of pictures or imaginary drawings.
3. Use of faked interviews, misleading headlines, pseudoscience, and a parade of false learning from so-called experts.
4. Emphasis on full-color Sunday supplements, usually with comic strips.
5. Dramatic sympathy for the “underdog” against the system.

Sound familiar?

Don’t get me wrong – the news is essential and some of it is legitimate, but if it seems as if I’m beating up on the news media relentlessly, it’s because I have. There’s a reason: They deserve it. The investing “headline risk” has been huge for years now. Normal-level stories get inflated into life-or-death fear campaigns, and small whispers of hopes of good news can set the market on a major bull run.

Two examples:

1. The trade war story vaporized billions of dollars in equity value in May. We read plenty of opinions on why the trade war will derail life as we know it, but if you want to find a more moderate view, you really need to dig. I found one “think piece” buried deeply at NBC News: “Trade War? Try trade tiff. Trump’s Mexico and China tariffs aren’t crippling the economy, or farmers.” It echoes many of my thoughts about the media-overblown situation over tariffs.

2. Fed Chairman Jerome Powell basically said that the Fed is willing to do whatever it takes to stimulate growth. This rippled into rumors of a rate cut, which sent markets soaring last week.

Bill Lumbergh is a fictional character in “Office Space” (pictured above). Apparently, everyone got his memo to “Sell in May and go away” because the market had its worst May since 2010, with the Dow off 6.7%, the S&P 500 off 6.6%, and NASDAQ tumbling a gut-wrenching 8.7%. Echoing December, ETF selling spiked at the recent trough of the market – a classic sign that Mom and Pop sold out at the bottom.

Equities were “Tweeted into a Tailspin” in May

May marked the largest monthly outflow in history for equity ETFs, which reached a record $19 billion, according to a State Street Global Advisors Report. As money flew out of stocks, they ran into fixed income ETFs. Matthew Bartolini said, “Global equities were tweeted into a tailspin.” I couldn’t have said it better! Financials, Tech, Industrials, Materials, and Energy saw the biggest ETF outflows in May.

But my, what a difference a week makes. That was the last week of May, but in the first week of June, the smart money wasn’t selling. In fact, we saw verifiable buying. First let’s look at the sector tables:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That is juicy! The Materials sector index exploded more than 9% last week! Semiconductors saw a pop after weeks of blood. Value and blue chips outperformed, but growth still surged.

Here’s what happened under the surface with unusual institutional buying and selling:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Our data showed exceptional buying. We had tons of “trips” (a stock tripping our model for big volume and volatility but not necessarily making a buy or sell signal.) This came with big up days after many down days and a falling ratio. We examined what that might mean for the near future and it was bullish.

Check the full report here.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The bears are still out there, but I see a different story. Many growth stocks are showing buying…that’s bullish. The Information Technology sector is on sale. Many fantastic stocks got hosed in May. The technical distribution pushed the sector down to #2 in terms of our top-rated sectors. Utilities took over with weak fundamentals and strong technicals. Infotech was the opposite.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

U.S. equities are the place to be. Global equity markets face much uncertainty, but the U.S. is the oasis. We have a strong dollar, strong sales and earnings growth, high profits, low taxes, and a strong economy.

Aristotle said, “It is during our darkest moments that we must focus to see the light.” When the market gets bearish and the news makes you sick, it’s probably a good time to focus on the data and get your shopping lists ready. I mean, Aristotle is bullish!

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner


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