One Wall Street firm used a famous Mark Twain quote to explain the nervous behaviour of investors this year

WikimediaMark Twain, chilling.

Markets were in turmoil at the start of 2016.

And everyone immediately started worrying that the health of the US economy might not be great.

But over the last few weeks, we’ve seen some encouraging signs suggesting that although the US economy is not super great, it doesn’t look like we’re heading for a recession.

Investors seem to have started to calm down a bit, a sentiment that Don Rissmiller at Strategas Research Partners captured perfectly when he wrote that “the U.S. economic data today is that it has gone from ‘mixed to bad’ to ‘mixed to good.'”

But still, others are nervous about the near future — especially with ongoing stresses including China and energy markets, which have put pressure on the credit markets, particularly junk debt.

To try and make sense of this, a research team at Oppenheimer led by Chris Kotowski channeled a famous Mark Twain quote to partially explain the psychology behind why investors were so quick to jump out of markets at the first sign of trouble in early January.

Here’s Oppenheimer (emphasis ours):

Mark Twain once observed that “If a cat sits on a hot stove, that cat won’t sit on a hot stove again. That cat won’t sit on a cold stove either. That cat just doesn’t like stoves.” In 2008, a whole generation of investors sat on a hot stove. The sub-prime market that was supposed to be small and containable wasn’t, and millions of investors got burned. Thus, perhaps it should not surprise us that investors have reacted with a hairpin trigger to what we view as reasonably modest stresses in what strikes us as an overall good economic picture. Nevertheless, we think the stove is cold, particularly as it relates to the large US bank credit quality outlook.

Basically, 2008 wasn’t that long ago, and investors are still very worried that they could be equally badly burned again.

Kind of like the cat that’s still afraid of the stove.

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