The almost longest Bull Run in history that began on 9 March 2009 appears fragile and too long in the tooth some Key Wall Street analysts, who are saying that investors are now the most Bearish on the market since the Real Estate collapse in Y 2008 that was engineered by the Fed and the Hussein Obama Admin.
Merrill Lynch sent out a note saying that money managers that run over $525-B in assets shows that cash levels have been raised to the highest marks since Y 2011, and that allocations to stocks have seen the 2nd biggest decliner recently in history.
Merrill notes that combined with forward multiples that are above historical norms is generating nervousness in many investors. Other’s do not agree however.
The FANNGs (we cover all of them daily), which include Facebook, Amazon, Netflix and Google have driven market performance for too many years, and this year tech is up 22% Vs the S&P 500’s 17.7%.
The Merrill note cited some Key reasons for the reported Bearishness: The on-going trade disputes, the potential for a recession (which we do not see), which the inversion in the US T’s yield curve might indicate, and concern over dovish domestic monetary policy. Savvy investors know that Wall Street like easy money.
This weekend we will have the G-20 Summit in Japan, and Presidents Trump and Xi may well talk trade issues, and make some progress toward resolution, there is investor certainty in this but no matter which way it goes Made in the USA will be the winner, and that is good for American businesses and consumers.
Merrill notes that its fund managers survey allocation is implying recessionary conditions and that “Investors are overweight assets that outperform when interest rates and earnings fall and underweight those positively correlated to rising growth and inflation.”
Also, the report pointed to the rally in the T-Bond market, which many investors considered a safe haven. Yields have fallen to 2 year lows and many are saying that the Treasury trade is currently the most crowded trade on The Street .
The survey was taken between 7 and 13 June showed a rotation into other defensive areas like fixed income, cash, utilities and staples and away from banking, technology and EU area stocks.
Plus, the surveyed managers expect the Fed to cut interest rates, and while they did not last week there is the likelihood that the FOMC will at the next meeting in July, and.or September.
The Bottom Line
The fund managers surveyed have valid concerns as the market’s valuations, and we are definitely in the late-cycle economically, and for the stock market. And that, of course, The Trump Trade & Tariff issues will remain in focus until an agreement is reached.
Iran continues it bellicose chirping in the Middle East, and the BREXIT issue in the UK are also of concern, but the market is ignoring them now.
Finally, we are in a Presidential election cycle, and until November Y 2020, and regardless of which party you like, it is another item that weighs on investor sentiment.
Note: Goldman Sachs has been more cautious and negative some Top tech stocks, but still sees lots bargains set up that it wants its clients buying.
HeffX-LTN’s overall technical out look for the major US stock market indexes is Neutral, with our Key indicators flashing Very Bullish as of Friday, 21 June 2019.
Have a terrific week.