Friends,
George Orwell once wrote:
"The most fundamental mistake of man is that he thinks he knows what's going on. Nobody knows what's going on."
Few words do better to capture the economic picture in the United States today.
AI investments have pushed the stock market to record-highs. The 4.4% unemployment rate is lower than it has been for the vast majority of the past fifty years. And GDP grew a robust 3.8% during the second quarter.
And yet several high-flying AI-related stocks have nearly been cut in half. CNN's fear and greed index was in the single digits (signaling Extreme Fear) last week.
Is this a sign of the AI Bubble popping?
Our short answer: "No" (at least, not yet...)
The AAII's investor sentiment survey is collected every week. It asks if market participants feel bullish, bearish, or neutral regarding the next 6 months for stocks.
It has been a remarkable indicator of when the general economy is in trouble -- and when we're being too optimistic or pessimistic. (The Y-Axis subtracts the percent "Bearish" from the percent "Bullish").
Investing when others are the most bullish has not worked out well. Three years following those green circles would have -- on average -- netted you negative returns.
But investing when others are most bearish has been great. Investing in the red circles, your average three-year returns are an astounding 52%.
Those red circles also signify our greatest fears: the outbreak of the first Gulf War, the Great Recession, COVID, rampant inflation, and "Liberation Day", respectively.
So where do we sit today? Right smack dab in the middle. It turns out, we're wary about an AI bubble, but we aren't capitulating to negative returns either. If nothing else, we are -- on average -- very cautiously optimistic.
Last week's dive wasn't a bubble popping. Rather, it was a bubble getting some air let out of it. Ironically, that's actually healthy; it can lead to more sustained growth in the market.
It's also why we think it's best to take the long view. If we're so focused on the market's minute-to-minute moves, we'll lose the forest from the trees...and pay the price along the way.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
P.S. It's Official, we are splitting up our YouTube Channel. Brian Stoffel is starting a new channel that will cover earnings, his portfolio moves, and more. Subscribe to his new channel by clicking here.
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