Everything is starting to feel like very familiar territory now …
Nothing financially bad can happen again. The stock market feels nice and welcoming. People keep making money. What am I not going to like when asset prices can only go one way?
This is how it felt in March 2000 before dotcoms turned south. It was what it felt like in October 2007 before the S&P capsized.
And that’s what worries me a bit. The warning signs are starting to pile up.
There is no fear here
The Bloomberg headline said it all: “Retail Investors Just Made Historic Move Toward US Stocks.”
TD Ameritrade’s proprietary measure of investor confidence, drawn from analysis of trading activity and client accounts, reached an all-time high, the “biggest increase in a single month,” and the company’s chief market strategist brokerage took note with this understatement: “The retail investor has become a little more believing.”
Another sign appeared on CNBC a few weeks ago with the headline “No Fear Here.” An ecommerce survey of its customers reached a bullish extreme, with a record 71% of its high-net-worth individuals (those with $ 1 million or more in their accounts) expecting the fourth quarter to end higher than it started. . Clearly, the expectation between them is to keep making money by being in the market for a long time.
What about the so-called “smart money”?
They take money off the table and sound the alarm:
Bank of America Merrill Lynch recently said in a bearish cautionary note: “Investors are no longer afraid of risk, but they love it.”
Carl Icahn stated: “I really think that even though the earnings are going to be very good … I think this has become euphoric.”
Goldman Sachs notes that valuations in almost all market classes are at their highest level in 117 years.
On top of all that, the stock market experienced something on December 4 that it hadn’t seen in many, many months: an antiquated “pop and drop” trading session.
The “pop” was at the beginning of the trading session. All major indices, such as the S&P 500, opened sharply higher at new all-time intraday records.
The “crash” began 15 minutes after the opening bell, with a high volume crash that persisted throughout the day, until the end of the session.
The point is, at least it’s not a bad idea to take some proverbial money off the table.
This trade hasn’t worked in a long time. But given the current extremes, in my opinion, you have a good chance of making money now.