Friday charts: Retail is one-upping Wall Street

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The legendary Peter Lynch advised investors to stop following the news.

“The person who never bothers to think about the economy, blithely ignores the condition of the market, and invests on a regular schedule is better off than the person who studies and tries to time his investments, getting into stocks when he feels confident and out when he feels queasy.”

The news has been unusually nauseating this year: trade wars, real wars, recession fears, AI doomerism.

And yet, here we are, right back at the all-time highs in both the Nasdaq and S&P 500.

There’s nothing particularly new about this.

Writing in the simpler times of 1993, Lynch noted in One Up on Wall Street that “if you had paid close attention to the negative tone of most of our ‘whither the economy’ sessions over the past six years, you would have been scared out of your stocks during the strongest leg of the greatest market advance in modern history, when investors who maintained their blissful ignorance of the world coming to an end were merrily tripling or quadrupling their money.”

Markets have gone on to far greater advances since then, and I’d argue that the only way to have fully captured them was to have remained blissfully ignorant of the world.

It’s easy to look at the long-term performance of stocks and think everyone should always be fully invested.

It’s much harder to look at the daily news and think now is the time to be invested.

Lynch suggests you don’t try.

“The best way not to be scared out of stocks is to buy them on a regular schedule, month in and month out.”

US investors have taken that advice to heart, to a degree that Lynch probably would not have imagined.

Now, an estimated 70 million American workers invest in 401k plans, metronomically pouring pre-tax money into equities, no matter what the news is.

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This makes the stock market less volatile than it otherwise would be. Or should be, probably.

And that should make them more valuable, too, because investors will accept lower returns (i.e., higher valuations) for assets that cause them less worry.

So it makes sense that equities would be more expensive now than they used to be.

They might get even more expensive.

As long as we have jobs — and therefore 401k plans — it might be hard for the market to go down much.

That would make stocks increasingly less scary — and increasingly more valuable.

Let’s check the charts.

Still saving:

The US personal savings rate ticked down to 4.5% in June. That’s low by historical standards, but still 4.5% of a large and ever-growing number. Some portion of those savings will go into buying equities every month, whatever the news.

Sentiment still has some catching up to do:

Stocks are back at all-time highs, but investor sentiment, as measured by AAII, remains on the bearish side of neutral.

Moving out on the risk curve:

US investors are embracing risk, perhaps because stocks seem less risky after weathering all the seemingly bad news this year. If equities are less risky overall, it makes sense to buy higher-risk equities.

The rest of the world is buying value:

Per Goldman Sachs, there’s been an unprecedented divergence between the outperformance of growth stocks in the US (the dark blue line) and the outperformance of value stocks in the rest of the world (the light blue line). While the rest of the world reaches for safety, US investors are all-in on growth.

Is everything safe now?

Ed Yardeni notes that profit margins in the semiconductor industry continue to rise. Semis were historically the most cyclical and therefore riskiest sector to invest in. Now, they seem almost defensive.

Good news or bad for humans?

Less than 10% of companies polled by the US Census Bureau report employing AI over the past two weeks. That might mean AI has only just started disrupting the job market. Or it might mean humans are more useful to employers than the AI hype would have you believe.

The proximate cause for all-time highs?

Expectations for an imminent rate cut are giving investors a reason to buy now.

One less reason to worry:

The Cleveland Fed InflationNow model sees US prices, as measured by CPI, rising at an annual rate of just 1.6% in Q2.

Stocks for the long run:

Bank of America strategists say US equities are on the cusp of just the seventh “great breakout” since 1990.

Noting the new highs in equities this week, a Bloomberg article listed all of the things that should be worrying markets at the moment — tariffs, the economy, consumer spending, and even professional advice to be cautious — and then concluded that “investors appear to be ignoring all of it.”

Peter Lynch would approve.

Have a great weekend, breakout readers.

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