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Market Bulls Wipeout Bear Bets

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“Buyers have done their work and have Tuned Out the Noise!” — Paul Ebeling

Stock market participants have heard these warnings over and over: stocks are expensive, growth is set to slow, higher taxes and hawkish monetary policy loom as threats. They have done their work and have Tuned Out the Noise

There is a Trillion $ force pushing back against all the Bearish voices, that is buyers who keep on buying.

Demand is up across the board, from die-hard day traders piling into meme stocks, to ETFs and even once-cautious hedge funds now raising leverage to boost exposure.

With dip buyers in at every pullback, the S&P 500 Index has gone 7 months without a 5% pullback, the longest optimistic run since February 2018.

Even a mildly hawkish surprise from Fed policy makers, some not all (7 of 18), now expect to raise interest rates twice by the end of Y 2023, did not erode buyer sentiment Wednesday, as the S&P 500 rebounded from a 1% decliner to close down only 0.5%.

The demand is driving up prices paid to those willing to part with stocks at the moment, like pensions and mutual-fund investors.

All told, equity purchases by a group including households, hedge funds and ETFs exceeded sales by $361-B in Q-1, the most since at least the 1950s. That extended 5 Qs running of inflows, during which purchases Topped $1-T, an amount that is 5X the total accumulated during the prior 10 yrs.

Corporate America, which had retrenched during the VirusCasedemic, is now also adding to demand, with share repurchases eclipsing offerings for a 2nd Q in a row.

Stock buying has resulted in a market resilience that has defied all skeptics.

Halfway into Y 2021, the S&P 500 has posted 29 new highs, on pace for the 3rd-best year for record closings.

Millions of retail investors are right now the dominant factor in the rising stock prices, but if you are looking at how companies have been loading on debt and creating war chests for buybacks, should that retail demand falter, company buybacks are prepared to pick up the slack, that is why this is a very powerful and durable Bull market.

In fact, the S&P 500 is up 90% from its 23 March 2020 low the best start of a Bull market in 90 yrs.

And technically, it has yet to see a 10% correction on a closing basis.

Plus, all long the way, warnings for a major market pullback are getting louder.

To some, the fanatic buying in and of itself is a sign of caution, making the market vulnerable to negative shocks. At Bank of America Corp., the latest survey of money managers showed cash levels have fallen below the 4% threshold, triggering a sell signal.

Over at Citigroup Inc., its chief US equity strategist counted 4 potential catalysts that could pose dangers for the market in 2-H of this yr, they are: the Fed’s discussion about rolling back its monetary stimulus, corporate tax hikes, inflation fears and the pressure on profit margins.

Our outlook says: Sentiment is ebullient, Valuation are not unattractive and strong profit trends remain.

We believe in buy on dips because corporate repurchases are set to accelerate. Buttressed by a rebound in profits and near-record cash hoarding, announced buybacks have more than 2X’d this yr to $570-B.

While retail interest in stocks, particularly meme names, may subside a bit, now it is too risky to go against that wave.

There looks to be no be no reason to go to cash and start shorting stocks, barring a gaggle of Black Swans.

Have a happy day, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.