This bull market is simultaneously one of the most loved and hated in history.
Credit it to the fact that stocks have kept rising in the face of several indicators that suggest this can’t continue.
Stocks have rallied even in the face of what strategist Jeff Saut of Raymond James said is the media’s glass-half-empty coverage of President Donald Trump.
Investor optimism has also climbed to historic highs, alongside business and consumer confidence.
That’s at odds with some strategists, including Saut, who are cautious of the rally amid little implementation of the pro-business policies that seem to be inspiring it.
“Corporate insiders sold $7.8 billion of their companies’ stock in February, which was the most in roughly six years.
“What do they know that we don’t know? Maybe they know that the Daily Sentiment Survey of Futures Traders shows a 92% Bulls reading. In the three times the reading has been that high since 2011 it has led to declines of 7% (2/11), 8% (5/13), and 3% (11/13). Also of note is that late last week the number of stocks making new 52-week highs on the NYSE collapsed by some 80%.
“Then there are the bullish sentiment figures that are at danger levels (chart 2 …). All of this continues to leave us in a cautionary stance despite the fact that stance has been wrong for three weeks.”
The chart shows the Investors Intelligence Advisor Sentiment reading on the S&P 500. The difference between bullish and bearish investors is approaching a “danger zone” seen near previous market tops. The annotations are Saut’s.
- Raymond James
Among the indicators that say this can’t continue, the most important is whether the US economy is entering a cyclical downturn.
“At least the economic data look good, and that is an important catalyst ultimately that keeps markets going,” David Harris, the chief investment officer at Rockefeller & Co, told Business Insider. “You’d probably have, more than anything, a pause that refreshes the US markets, as valuations are arguably ahead of themselves.”
Harris foresaw a “time correction” in the market, but not a drop that would materially end the bull run.
Other strategists warn that the recent run-up has been a “hope rally,” built on the prospects that Trump delivers his campaign promises of infrastructure spending, corporate tax cuts, and deregulation.
David Rosenberg, the chief economist at Gluskin Sheff, said in a note that momentum can only carry the market so far.
“Sentiment is ridiculously overdone, with the Investor Intelligence survey showing the bull share at 63.1%, the highest reading since January 1987, when tax reform had become a reality, not just a mere projection,” he wrote on Monday.
“We think the equity markets are at an inflection point,” Saut said. “The next few sessions should tell if this is the case.”