The Music Is Playing, but No One Wants to Dance

The punch flowed... The disco light spun... But my friends and I were cemented to the wall.

It was our senior formal. The dance floor had room to spare. And still, we were determined not to enjoy ourselves.

We were all part of a program that put studying first. Reading and homework crowded out socializing for us. So it was easy to psych ourselves out when school dances rolled around.

Instead of cutting loose, we hung out by the punch bowl... considered dancing once the songs got better... and talked trash about the kids brave enough to move to the music.

Eventually, the fluorescent lights snapped on. The chaperones told us to leave the gym. And in that moment, I always felt the same thing... disappointment.

My hesitation made me miss the whole point of the event. And in all my high school years, this lesson stung the most. But it's one I think is important for investors today.

It's happening right before our eyes...

Bulls are turning to wallflowers. And if you stop and overthink things now, you too could miss the dance entirely.

A steady drip of bad headlines and interest-rate speculation has investors spooked. Folks are fleeing for the safety of hedges.

The examples are everywhere you look...

Billions of dollars are pouring into ultra-short-term bond funds. These exchange-traded funds (ETFs) hold debt instruments that mature in less than one year. They're considered cash-like "safe havens" from volatile moves in stocks. And with the uptick in uncertainty we've seen lately, investors are pouring money into them.

The SPDR Bloomberg Barclays 1-3 Month T-Bill Fund (BIL) had its biggest weekly inflow since 2020 last week...

The same thing happened in the iShares Short Treasury Bond Fund (SHV). And the PIMCO Enhanced Short Maturity Active Fund (MINT) had its best week since it launched in 2009.

Folks today want their money parked where nothing bad can happen to it. That sounds good... But it also means not much good can happen to it, either.

These ETFs aren't the only way investors are leaving the dance floor...

According to our friend Jason Goepfert at SentimenTrader.com, hedging activity has risen to its highest level in two years.

In the last week of January, small options traders bought nearly 12 million puts – options that increase in value as stocks fall. It was a record quantity... 40% more than folks bought during the worst week of the March 2020 market crash.

I'll say that again. People are more panicked now than they were at the start of the pandemic. But the music hasn't stopped yet... And it isn't time to sit by the wall.

Consider the housing bust in 2008. Or the dot-com crash in 2000. In the lead-up to both, investors were downright giddy.

The market couldn't be further from that sentiment today. Instead, we saw a 10%-plus decline in tech stocks just weeks ago.

The fact is, bull markets don't end in uncertainty. They end in outright exuberance... And right now, exuberance has left the building.

So, I urge you not to be a wallflower. The Melt Up is on. This isn't the time to hesitate.

It's time to jump in... while everyone else is fretting by the punch bowl.

Good investing,

Sean Michael Cummings

Further Reading

"If you believe we're at the beginning of a major bust, history disagrees," Steve writes. Stocks can't soar forever. But with investors scared and the market down, we could see a double-digit rally in the near future... Read more here: Why Stocks Could Nearly Double by 2024.

The choppy market action we saw in January spooked investors out of stocks in droves. But this bull market still has room to run. And history shows that staying long could lead to significant gains over the next year... Learn more here: Investor Fear Points to More Upside in Stocks.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

AbbVie (ABBV)… pharmaceuticals
American Express (AXP)… financial giant
Morgan Stanley (MS)… financial giant
Travelers (TRV)… insurance
W.R. Berkley (WRB)… insurance
Raytheon Technologies (RTX)… “offense” contractor
Philip Morris (PM)… cigarettes and alternatives
Hyatt Hotels (H)… hotels
Marriott International (MAR)… hotels
Cheniere Energy (LNG)… natural gas
Halliburton (HAL)… oil services
Mosaic (MOS)… fertilizer

NEW LOWS OF NOTE LAST WEEK

PayPal (PYPL)… mobile payments
BlackLine (BL)… cloud-based accounting software
Clorox (CLX)… cleaning supplies
3M (MMM)… manufacturing