Market Analysis

Contronym Investing

If you ask the financial press, stock market investors have been "euphoric" over the last year.

If you ask the financial press, stock market investors have been "euphoric" over the last year. Yet, the MarketMinder staff has tracked dire warnings and pessimism galore about asset prices going back much further than that. We constantly read about investor exuberance, or today's big stock market "party."

But we've just got to ask: who exactly is so euphoric? Where can we find all these blind fools, supposedly laughing like hyenas and frolicking with each other in frenzied, ecstatic stock market buying parties? We've searched the investing cosmos over and again, and frankly, we can only find a very scant few outright screaming bulls. The vast majority of forecasters see modest returns this year—not necessarily a new bear market—but just middling, adequate results amid a world full of risks.

The truth is, short positions in equities have recently hit records, and now comes a survey indicating Wall Street analysts are "more bearish than ever."

Wall Street Analysts More Bearish Than Ever; More Accurate, Too
By Nick Baker and Daniel Hauck, Bloomberg (*site requires registration)

If this is euphoric, then maybe it's time to revisit some basic definitions. According to Webster, euphoria is "a feeling of well-being or elation." In that case, maybe euphoria has become a contronym. A contronym is a word with two or more accepted meanings that directly contradict each other. The word "sanction" is a good example. If you sanction something, that should mean you're allowing or permitting it. After years of twisted political rhetoric, to sanction a country today is to impose restrictions, or punishments. Exactly the opposite of allowing. (You can read all about contronyms here: How do contronyms arise in the lexicon? It's hard to say, but many linguistic experts believe they can arise through misunderstood sarcasm and twisted public rhetoric over time.

So, is euphoric a contronym in the investing world today? Does the media really mean to say investors are being cautious when they use the word euphoric? We doubt it. More likely, the misunderstanding is a symptom of a very common cognitive error.

Most folks mistake a bull market, that is, rising stock prices, as a proxy for sentiment. That's about as wrong as it gets. Sentiment and asset prices are two very distinct things. Bull markets thrive on negative sentiment. A bull's heart pumps innumerable gallons of thick fear through its veins as stock prices climb. It's the exact opposite—when nobody believes stocks are headed way down—that stocks are much more likely headed for a fall.

Amid the supposed turmoil about interest rates and global inflation over the last weeks, world markets are again testing all-time highs. Even China's markets (which took the biggest drubbing over the last couple weeks) have made a full rebound.

Maybe fear is the new euphoria. In that case, call us petrified.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.