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The FT reports here that bearish investors may have finally capitulated. Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. John Templeton said that. A lack of bears is a necessary precondition for a bull market, but it should not be viewed as a catalyst for a bear.
Media commentary, which invariably reflects the opinions of influential market participants, appears to be becoming steadily less bearish the further we move away from the last crisis. My colleagues on FT Alphaville have pointed out that the number of articles mentioning the term “market bubble” have fallen sharply, with mentions in 2017 sightly higher than the year before, but lower than every year since 2013. Media mentions of this term, according to a Factiva search, were also lower than the years between 2002 and 2008.
Professional investors meanwhile appear to be engaging in buying behaviour apparently contradictory to their views on the market. The closely followed Bank of America Merrill Lynch monthly fund manager survey, which polls investors managing $541bn of assets, showed in June that equity investors had returned to being overweight US equities for the first time in 15 months. This is in spite of US stocks being the most richly valued of all developed markets. At the same time the respondents said they were most overweight global technology shares, while simultaneously believing that being long large US and Asian technology shares was the “most crowded”, and therefore dangerous, trade at the moment.
On top of all this a growing number of commentators have moved from warning of overvaluation to simply acknowledging markets are expensive, and encouraging their followers to remain invested and run away just before things get ugly. This is at precisely the time when higher interest rates in the United States will probably diminish the appeal of stocks to investors previously desperate for yield.
Read more here.
Jeremy Jones, CFA
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