Is it possible to be too happy and bright when the holidays are here? The question is timely given the apparent uptick in investor enthusiasm for stocks in recent weeks and traders’ renewed rush to grab the most intense assets. The trick, however, is trying to differentiate between a bull market that thrives on rational fundamental bullishness and a bull market that has become so active that the risks are extremely high. It’s unclear if the line has been crossed, but at this rate, it probably isn’t too far away. To be sure, we have entered the “belief” phase of this bull market, which is more than two years old and shows few signs of ending anytime soon. The reason to favor stocks now is not because they are cheap or undervalued, or because there are high concerns or deep doubts about the fundamentals of the economy, but because we are in the middle stages of economic expansion and technological advancement. Lasts for a while. Inflows into equity ETFs have surged recently, reaching a monthly record in November and reaching more than $25 trillion over the past three months. Todd Sohn, an ETF and technology strategist, said that while the share of total U.S. stock market capitalization is not shockingly extreme, the move “reflects palpable enthusiasm, especially as the S&P 500’s 12-month price Trade within the first tenth of momentum.” at Strategas Research. Wall Street brokerage strategists turned bullish as they were too cautious heading into 2023, with the S&P 500 ahead of consensus targets nearly all year. They appear unwilling to fall behind again, with almost everyone calling for victory in 2025, with forecasts of around 6,500 to 7,000 people, or a 7% to 15% increase from today. While the market’s reaction to the election of Donald Trump in 2016 appears to be symmetrical to that of Donald Trump in 2024, Wall Street’s outlook now looks very different. In December 2016, after the initial post-election rally, strategists expected gains of just 5% in 2017, the lowest expected return since 2005, according to a Wall Street Journal article. “Strong valuations and the unknowns of Donald Trump’s first year as president” at the time. Of course, 2017 was one of the highest return/lowest risk years for buy-and-hold investors, with the S&P 500 extending the wall of worry to a 20% gain rather than a 5x gain. % all the way back. Even more interestingly, David Rosenberg, a long-time bearish economist at Rosenberg Research, issued an apology last week and pivoted to a no-brainer on the expensive market. Presumption of guilt. .SPX YTD mountain S&P 500, YTD Don’t ignore Blackrock Investment Institute’s 2025 outlook, which first reiterates the strategist’s assertion that “we are not in a business cycle…Historical trends is being permanently disrupted in real time” Forces such as the rise of artificial intelligence are transforming the economy. ” On the surface, this sounds like horrible, hateful “this time it’s different” hubris. However, this is more nuanced than saying the old rules are obsolete. It’s clear that the investment boom in artificial intelligence has helped stocks weather the earnings slump over the past two years. Now, profits are expanding and potentially high-intensity economic policy intervention awaits. BlackRock went on to say, “Financial markets may struggle to contain any policy extremes, such as fiscal policy. But we believe that when stocks rise, regulatory intensity will be reduced, which may lead to a bubble in risk appetite.” Signs of a bubble, of course. Some bubbles are clearly forming, such as the high-velocity trading indicator. Demand to protect downside indexes through put options is near record lows, while demand to provide upside exposure through call options, known as skew, is near record lows. While BofA technician Stephen Sultmeier noted last week that we’re still not at the extreme extremes that persisted during the financial crisis, the ratio of put options traded to calls has been at a level widely viewed as extending downward ( means overly bullish). Bitcoin’s rise to $100,000 has excited a large number of cryptocurrency investors. Never lose sight of the fact that MicroStrategy continues to issue billions of dollars worth of zero-coupon convertible securities to buy more Bitcoin. These convertible bonds are a way for companies to get compensation for stock volatility from hedge funds, who use arbitrage strategies to take advantage of the options embedded in the convertible bonds. On top of that, a leveraged ETF on MicroStrategy stock itself must provide protection against daily price trends. These are among the most traded instruments on the market. Elsewhere, Goldman Sachs last week raised Robinhood Markets shares to $39, with shares surging from $10 10 months ago, days after Robinhood’s chief executive said the company could expand into sports betting. AppLovin shares are up more than 900% this year and are now more than 150% above their 200-day average price, with buyers becoming increasingly aggressive. A broader subset of software and “fintech” stocks experienced a meteoric rise in emerging tech stocks about four years ago before collapsing and enduring years of neglect, and are now flying again. On Friday alone, DocuSign surged 27% on the back of a decent quarterly report and doubled from its early August lows. The WisdomTree Cloud Computing ETF and GlobalX FinTech ETF are filled with names with high short interest, up more than 40% in four months (but still well off their 2021 peaks). This is arguably an “echo craze” of the last sustained retail trading frenzy, with retail traders focusing on immature and fast-moving stocks. On a more speculative level, penny stocks with various “no limits” tech themes, such as electric helicopters and quantum computing, often top the most active lists. Is it just a normal bull market? Still, while investors, worried about this craze for low-quality commodities, have railed and raised yellow flags, it’s unclear whether this is just a bull-do-a-bull thing, with occasional overshoots and stampedes. Ultimately, one thing bull markets do is punish what risk-averse participants define as “caution.” The market’s frenzied speculation may even reflect a resurgence of animal spirits, which could serve as a broader rally acceleration — and then potentially turn into a short-term climax. It’s also important to note that all of the good feeling and risk appetite occurred when the index was in a solid uptrend and was producing superior returns. In other words, this is largely an “expected” bullish level relative to market conditions themselves. Most investor surveys, position indicators and even margin debt levels still don’t sound an immediate warning. I’ll point out again, as I did here two weeks ago, that most of the action is well contained in certain corners of the market, with high-turnover “story stocks” (electric helicopters? quantum computing?) , leveraged crypto cars, and Trump-adjacent stocks (Palantir, Tesla) are rising sharply, but have little impact on the core broad market indexes. Last week was a great example of how most markets rotate. Just as cyclical stocks have become the clear pick before and after the election, economic data has also retreated slightly from strong levels, pushing industrial stocks and bank stocks back around 2% last week. A return to big-cap tech stocks has kept the index climbing to new records while most stocks are consolidating. In some ways, the market itself is its own best advocate. The Leuthold Group maintains a major trend indicator that combines four major market drivers. Valuations, sentiment and cyclical indicators have been largely negative for several months. However, technical indicators have been flashing bright green. In the latest data at the beginning of last week, more than a dozen market trend indicators all received “perfect scores” for the first time, covering major indexes, market breadth, leading sectors and super growth stocks. This is an interesting read for those who believe that they should spend more time listening to the market rather than yelling that it may be wrong. None of this changes the fact that 22.5 times forward earnings is a steep price to enter for the S&P 500 (even if valuations tend not to compress as earnings rise and the Fed becomes more accommodative). For now, investors can make any choice about the details and impact of Trump 2.0 policies, and overall they appear to be more willing to price in terms of incremental benefits rather than costs. Also note that the level around 6100 (just above Friday’s close) is also a long-term upside target and based on some trend research, it is at the top of the index’s long-term upward path. Bottom line: Don’t be surprised if some excuses for a strict gut check pop up before long. But don’t try to be a hero, the group that aggressively bets on happiness will soon be punished.
How much holiday cheer is too much? Investor enthusiasm for stocks surges into year-end | Real Time Headlines
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