“It’s like the Street has been lulled into a deep state of complacency after the averages blasted through four years of bad news with barely a flinch.”
Don’t look now, but the S&P 500 just hit a new 5-year high, gaining .4% on the week to lift the benchmark to a 3.2% gain on the year. Take a look at the new high in the 5-year chart below.
Those solid gains are being driven by some serious inflows into stocks. According to equity research company Lipper, equity funds took in $18.3 billion on the week, the fourth largest weekly inflow since it started tracking data in 1992. $10.8 billion of that rolled into ETF’s, while another $7.5 billion went into mutual funds, the largest inflow since May of 2001.
That has many analysts suggesting that “all that money on the sidelines” is finally getting back into the game more than 4 years after the mega crash of 2008 and 2009. Investors have remained scarred from brutal losses.
But I have to say, the timing on all of this is quite interesting. It almost feels like one big setup by the insiders and smart money to lure regular investors back into the market, chasing gains after the S&P 500 has already thrown up huge gains in the last four years and more than doubled.
Because really, there aint much to feel good about. Global economic growth is supposed to be tepid this year, and we’ve got this huge debt ceiling battle brewing in the background.
It’s like the Street has been lulled into a deep state of complacency after the averages blasted through four years of bad news with barely a flinch. The VIX, a measure of fear and volatility, has rarely ever been lower. That basically means the Street has no fear. No fear of losses, no fear of a correction. That’s usually not the time to start getting bold and bullish on stocks. The time to get bullish is when everyone hates stocks.
So as it stand, portfolio managers are chasing returns. Being bench marked against the S&P 500 means cash needs to be deployed into stocks. But I can’t say I have much confidence in the market.
Mostly because of the debt ceiling. Stocks are humming along right now, but what happens when the politicians pull their usual episode of brinksmanship and push the debt ceiling to the 11th hour? Last time the debt ceiling was in play in August of 2011, stock fell a whopping 19%, 1% shy of a bear market.
Looking forward, we’ve got earnings season on tap. Earnings growth has definitely slowed, but earnings in general are still very solid, back above peak earnings from 2007. Look for earnings to set the tone for the next week or two. After that, it’s anyone’s guess.
Updates:
Two sectors that have been on fire: Agriculture and Healthcare.
Out of healthcare, Celgene, Inc. (CELG) has been burning up the charts, up a market-smashing 23% on the year after announcing preliminary 2012 results that were at the high end of expectations. Take a look at the big gain below for the branded drug specialist.
Amerisourcebergen (ABC) has also been hot, breaking out of a long-term channel and hitting a new 52-week high. Take a look at the nice breakout below in the wholesales of generic drugs.
In agriculture, Bungs Ltd (BG), a wholesaler of grain products like corn, beans and wheat that it sells to food producers, is pressuring a 3-year high and in formation for a solid breakout. Check it out.
That’s all for this week, but until next time, here is another article discussing sentiment and the complacency of the Street right, which is usually not a good signal for stocks. Enjoy!
Is the Crowd’s Cheery Mood Reason to Fear Rally’s End?
Your Investment Partner,
Mike
Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment Advisor (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of Trade before spending five years managing equity portfolios for a private investment research company.
Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).
