Dealing with rejection is never easy. Well, unless you’re Lloyd in Dumb & Dumber and you’re so delusional you can’t appreciate you are being rejected, which, when one considers it, might not be such a bad way to go through life. That said, let’s pivot from one of the great comedies of all time and toward the stock market, where rejection is actually a good thing.

When the masses fall in love with stocks – or any asset class – it’s time to worry. Think of the stock
market in the late ‘90s, when equities became a can’t lose proposition and we were all going to quit our jobs and become rich by day trading Internet stocks. Or, consider housing 12 years ago, when most Americans were certain home prices could only go up, and any number of TV shows encouraged us to jump into the homeflipping game. As we know, the late ’90s were a terrible time to buy US stocks and the mid-’00s were a terrible time to buy a house and that’s because during those two periods everyone was in love with, respectively, stocks and real estate. When everyone is in love with a particular asset class they already own the asset class and, as a result, there is no one left to buy the asset class but there are plenty of folks to sell the asset class, so the path of least resistance for prices is lower.

We would argue – despite the duration and durability of the ongoing bull market – US equities have been rejected by most investors. Consider that since the US market bottomed in March 2009, about $1.4 trillion has gone into US bond funds and about $184 billion has come out of US stock funds (those trends are directionally consistent when ETFs are factored in). Now, some of the buy and sell decisions of the past 10 years were undoubtedly driven by financial planning and demographics, but we see the pain of the Great Recession as the more significant factor pushing people away from equities. Whatever the cause, most Americans have not participated in a meaningful manner in the longest-running bull market in our country’s history. While we feel awful for those who have missed out on our 10+ year bull market run, that rejection of US stocks means that there are still a lot of people and a lot of capital that can come into the market, and that is a very bullish dynamic.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Tagged: market perspectives, Tim Holland, US equities, bull market