Too Much Conviction in Consensus

Maybe it’s my contrarian nature, or maybe it’s my suspicious nature, but whatever the reason, when it comes to a widespread consensus in the markets, I tend to get very nervous.

Indeed, I’ve been struck by how much conviction there seems to be out there in the general consensus among many on Wall Street. These days, it seems there’s a huge contingent of advisers who think stocks will continue going higher and higher in 2014.

There’s also a cadre of bond haters who think that yields will continue rising and that, therefore, bonds will continue to be dead money. And then there’s gold. Not surprisingly, the consensus here is that gold is for losers and that you have to run for the exits while you still can.

Of course, not every pundit out there is claiming the aforementioned outcomes for 2014. There’s still plenty of diversity of opinion out there if you look hard enough. However, the “bullish on stocks, bearish on bonds and gold” collective mindset certainly seems to be the dominant thinking this year.

Unfortunately for the consensus, 2014 so far has seen just the opposite.

Through Tuesday, Jan. 21, the S&P 500 Index is basically flat in 2014, with just a sliver of a gain year to date.

As for bonds, they’ve actually shot up in value so far in the young year, as the iShares Barclays 20+ Year Treasury Bond (TLT) is higher by 3.25% year to date through Jan. 21.

Gold prices also have gotten off to a good start, with bullion rising about 2.5% year to date. The real action, however, has been in gold mining stocks. The Market Vectors Gold Miners (GDX) is up nearly 6% so far this year, as money has come back and put a shine to this beaten-down market segment.

Now, I know it’s early in the year, and I also know there’s been less than three weeks of trading in 2014. Still, what we can conclude by the action thus far is that the consensus opinion is a little off track.

We also can conclude that the market hasn’t really tipped its hand yet in terms of a clear trend. Until the price action reveals itself one way or the other, I think your best bet is to continue to remain cautious, and to try not to believe all of the consensus hype.