TV Sentiment For The Next 12 Months

The chart below shows the financial TV sentiment for the economy, stocks, volatility, emerging markets, inflation, treasury yields, and commodities from 2013 to 2018. It's amazing to see how this sentiment indicator had almost 100% optimism for inflation in 2017, but inflation didn't perk up. As a result of that disappointment, inflation sentiment has worsened even though the environment for higher inflation is even more ripe. Generally, this sentiment is backward looking. Two of the changes for this year which aren't backward looking are that equity optimism has fallen and volatility optimism has increased. This is likely because some analysts think the market is due for a decline. As we've reviewed, just because stocks were up a lot in 2017, doesn't mean 2018 will be a bad year.

That being said, I do agree with the optimism for volatility along with the optimism for commodities, the economy, treasury yields, and emerging markets. The fact that equity optimism isn't high either means the stock market isn't in a bubble or that financial journalism no longer acts as a reverse indicator because journalists have gotten smarter. It's easy to get information because of the internet. Therefore, I'm guessing more journalists are aware of how expensive stocks are now compared to the 1960s. There have been many reports about the Canadian housing bubble, showing how the journalists aren't far behind. The concept of acting against the headlines is an anecdotal signal that no longer works.

Oil Prices Matter More To The Economy

Unlike the past, the American economy isn't just affected by oil because of input price changes. The investment in new fracking projects also drives growth. Therefore, a happy medium in prices is the best for the economy. Oil prices need to be high enough to drive investment, but low enough so they don't weaken demand. However, don't get overly worried about oil prices staying in a perfect range or sweet spot. One way of looking at spikes in oil prices is that the negative effects are mitigated by the job creation in the energy sector. The U.S. is the 3rd biggest producer of crude oil in the world.