The Two Biggest Risks to the Bull Market
The following post comes to us from The Pragmatic Capitalist.
The rally off the March 8th lows has been nothing but spectacular. In hindsight, it's clear that investors overreacted to the downside, but as stocks surge more than 50% it's time to begin pondering whether the current rally isn't due for a bit of mean reversion in the opposite direction. Contrary to my bottom call on March 8th when I said it was time to invest in risky assets (a full history of my 2008/9 calls can be found here including our 2008 crash call and March 8 buy call ), now is the time to put on your risk management cap as a number of various threats begin to pop-up across the market. I recently turned near-term bearish on stocks due to 2 primary reasons: sentiment & seasonality.1) Sentiment - As I often say, psychology drives markets. After months of skepticism regarding the rally we are finally beginning to see an overwhelming amount of bullishness. This is a screaming contrarian indicator. The latest consumer confidence readings showed a marked jump to 54.1 and bullish sentiment among fund managers has soared to its highest level since 2003:The latest Merrill Lynch(MER) fund managers survey shows an extraordinary jump in optimistic sentiment. The survey makes up the current psychology of 204 portfolio managers running over $550B in assets. The report showed a 63% jump in sentiment since July and the highest reading since November of 2003. General Patton famously said, "when everything is thinking the same, someone isn't thinking". Truer words were never spoken in the marketplace.- Loading Comments...
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