The market is forward-looking. It’s looking beyond the bad news, past the next recession and into the next recovery.
Excessive bullish sentiment shows that the market has discounted the positives but not the negatives, Randall Forsyth writes. Indeed, Boehner cries, birds drop, and many other signs portend a crisis-filled year – yet stocks may keep rising as long as they’re the only game in town.
In all seriousness, the stock market is also thoroughly decoupling from…the entire rest of the economy.
Jobs? Don’t need ’em, corporate earnings go up when they lay people off.
Debt? Who cares, the government will just bail out the banks, either directly or with POMO, lower interest rates, etc. Pretty soon they’ll be outright paying the banks to borrow money.
Housing? The banks have already been and continue to be bailed out from that. It’s Fannie Mae’s problem now. Which means it’s the taxpayers’ problem.
Inflation? Just helps stock prices all that much more.
The rich are getting richer, the poor are getting poorer — all of these things bode well for the equity markets.
The rest of the economy, well, we’ll just try not to think about that.
Market Vane’s polling stock futures traders is at an “eye-popping 63% of bulls,” Walter J. Zimmerman Jr. of the technical advisory service United-ICAP points out in a missive to clients. “This is higher than the 61% bulls at 1552.87 peak [in the Standard & Poor’s 500] of March 2000 and is fast approaching the 69% bulls peak at the 1576.09 October 2007 high,” he adds.Article Continues Below
All of which adds up to a “sentiment extreme,” Zimmerman continues.
“As I write this, the cheerleaders on financial TV are gushing over with an extreme bullish enthusiasm. I do not remember seeing such unreserved exhilaration at either the peaks of 2000 or of 2007.
“The important message in this is that the track record of such cheerleaders closely tracks the bullish consensus numbers. At major lows after a major dump, these cheerleaders look and act like their entire family had just died. At major peaks after a major rally these cheerleaders look and act as if they had just won the lottery. So buyers beware!!”
We are all wired to worry, and a sense of fear about the future is generally healthy for investors to carry with them. But a sense of greed is always there as well. And day by day these past few weeks, that greed is building as investors long on the sidelines look enviously at the gains made by those who got back in before them.
Bonds, gold and other stars of 2010 are suddenly weak, and so there is not another game in town. When that group plunges back into stocks in earnest, it will certainly mark the top of the latest rally. But with fourth-quarter earnings and company outlooks for the year just a week or two away, thereâ€™s little for everybody else to cry about just yet.
Letâ€™s Celebrate This Jobless..Houseless..Recovery.1 views