Wednesday was another day when the events in Ukraine were blamed for impacting investor sentiment. Vladimir Putin, in what appears to be an attempt to fight back against some of the recent sanctions imposed on Russians, announced that he is limiting imports of agricultural products from the countries imposing these sanctions.
During these periods one often turns to the papers for inspiration and on Wednesday the Evening Standard duly delivered. The headline on the market roundup, "End of bull run fears has sellers going on the rampage", as the FTSE 100 fell less than 1%. "Sell, sell, sell was the call apparently from those not on holiday", Rebecca O'Keeffe, head of investment at interactive brokers is quoted. Rebecca goes on to add that global markets are starting to show signs that the most unloved Bull Run in history may be coming to an end. The events of the Ukraine, weak macro data from Germany and the rising Vix apparently are responsible.
One can never be 100% certain but reading headlines like this reassures us the bull market run is unlikely to be at an end just yet. What it probably signals is that enough fear has been engendered into the equity market to stabalise asset prices. The real concern when one reads headlines like this is what the unsophisticated investor travelling on their way home may think. Should I panic? Is everyone else selling? As psychologists point out individual tolerance for losing money is very low. Our immediate reaction to headlines like this is that it may be time to buy not sell. When the bull market ends I don't suppose any one will correctly call it, although many will claim they did.
Rebecca is correct this is an unloved rally, as we were credited with pointing out on CNBC the other day, that is because relative to history investors are still underweight equities. As many a strategist will point out bull markets tend not to end when so many investors are relatively underweight. The bull markets of 1987, 2000 and 2007 ended when people started to believe equity prices went up every day without fail that is true love.
When considering geopolitical risk it is always worth remembering the old adage regarding investing and wars, buy. If the threat recedes the market recovers and if it doesn't there will be greater concerns to focus on. The Vix that is often quoted here and almost everywhere these days is a very good contra indicator. For a lead on the market one should look for days when equity prices and the Vix move contra to one another. For what it is worth on Wednesday as apparently ever one was heading for the equities exit sign, the Vix fell.