Arguably the most hated US equities market rally in history continues with barely a hiccup. Like children caught pinching sweets, investors have been forced to eat the whole jar. The nausea is deepening.
Not even a hurricane the size of France could knock the rally off course. US stocks, led by insurers, fired back to life at the start of this week, hitting a record closing level after the storm eventually caused disaster rather than total catastrophe in Florida. Another apparent reason to be cheerful (and this is scraping the barrel) was the lack of further sabre-rattling from North Korea. These are weak drivers for new record highs, but the market cannot be held back. It was “just another melt-up Monday”, as Peter Tchir at Brean Capital put it — one of several this year.
So, champagne all round? Again, typically, no. As Mr Tchir notes: “The problem with the bull case is that there is a ‘but’ for virtually every argument the bull case relies on that is quite compelling.” Yes, president Trump may try to get his tax agenda back on track, for example. No, that still will not be easy.
Banks continue to report being inundated with questions about when the wheels will finally come off major markets. “Clients keep asking about an impending equity downturn,” said analysts at Goldman Sachs, with a somewhat weary tone. Investors are spooked by the notion that high valuations, poisonous politics and a potentially synchronous rush to the exits by quant funds could reach the boil at the same time. Don’t sweat, at least not yet, the bank said, again. It has previously warned that war and recession are the two most likely triggers for the end of a bull run — a cheerful thought — and it broadly sticks by that. But there is little suggestion of either for now.
Similarly, Bank of America Merrill Lynch’s latest monthly survey of 214 fund managers, between them managing $629bn in assets, points to the biggest jump in 14 months in hedging activity against a sharp drop in the equity market.
It is just that though — a hedge. “Markets can remain in an Icarus upside mode for risk assets,” said Michael Hartnett, chief investment strategist at the bank. “Irrational exuberance” is still absent, he wrote. Enjoy the sugar.