Animal spirits? How many months to go?

[Lsbcal]

This article makes a lot of sense to me:
https://www.bloomberg.com/news/arti...as-stocks-set-to-race-past-fair-value-in-2017

“We raise our 2017 year-end target to 2,450 to reflect increasing likelihood we are entering a typical end-of-bull-market rally,” the team, led by U.S. equity strategist Savita Subramanian, wrote in a note Wednesday. “The stock market has always seen outsized returns leading up to its eventual crash, and we think this time will be no exception.”

We have not gotten to the greed stage quite yet in my opinion. That chart in the Bloomberg article does not indicate extreme investor bullishness in recent months.

When I looked at the fund flows data at ICI it does not show high levels of inflows more characteristic of a blow off stage. So it may be coming. Here is an undated chart I keep for those fund+ETF flows. The green bars (6 month moving average of equity inflows) are not very high but they are positive.

FWIW, I don't yet anticipate making any changes in our AA or strategy. Just rebalancing as per plan. But watching the market in the bull phase is fun. If we get towards fall and appear to be in a greed phase, I might just lower the equity allocation.

 

[NW-Bound]

I concur. Not time to sell yet. Need more people to dig out their cash from the mattress and buy. I don't know when I will sell, only that it is not now.

Of course, just because we agree does not mean that we cannot both be wrong.

By the way, many of the sectors and stocks I am holding have been beaten down bad, and they are just now recovering. I am certainly not selling those now.

 

[RobLJ]

I get a daily links email from the Financial Planner organization, and last week saw a chart indicating that a large number of individual investors are still not in stocks. Sorry I can't find the link; if I do, I'll post it.
However, I think the last 3 months have brought me to about 65% stock allocation; another 2 % in the market and I should have to rebalance at least a few percent since 66% is my trigger. (I have about 1/3 of the stock allocation in international, which doesn't always move the same as the S&P, so it's hard to say what % move it will take.)

I concur. Not time to sell yet. Need more people to dig out their cash from the mattress and buy. I don't know when I will sell, only that it is not now.

Of course, just because we agree does not mean that we cannot both be wrong.

By the way, many of the sectors and stocks I am holding have been beaten down bad, and they are just now recovering. I am certainly not selling those now.

 

[MRG]

This article makes a lot of sense to me:
https://www.bloomberg.com/news/arti...as-stocks-set-to-race-past-fair-value-in-2017

We have not gotten to the greed stage quite yet in my opinion. That chart in the Bloomberg article does not indicate extreme investor bullishness in recent months.

When I looked at the fund flows data at ICI it does not show high levels of inflows more characteristic of a blow off stage. So it may be coming. Here is an undated chart I keep for those fund+ETF flows. The green bars (6 month moving average of equity inflows) are not very high but they are positive.

FWIW, I don't yet anticipate making any changes in our AA or strategy. Just rebalancing as per plan. But watching the market in the bull phase is fun. If we get towards fall and appear to be in a greed phase, I might just lower the equity allocation.

How current is the ICI data? Monthly, quarterly?

 

[braumeister]

last week saw a chart indicating that a large number of individual investors are still not in stocks.

But they're still considered investors?

 

[NW-Bound]

Well, they are holding bonds, CDs, or Krugerrands, I guess.

 

[Lsbcal]

How current is the ICI data? Monthly, quarterly?

The January numbers are given weekly and are perhaps preliminary. They are pretty current I believe. I've found that the numbers for past months do not change much but they do change a tad. Here is the link for the data source: https://www.ici.org/research/stats/flows/

 

[RobLJ]

Divestors?

But they're still considered investors?

 

[jebmke]

Sylvesters

 

[DrRoy]

FWIW, I don't yet anticipate making any changes in our AA or strategy. Just rebalancing as per plan. But watching the market in the bull phase is fun. If we get towards fall and appear to be in a greed phase, I might just lower the equity allocation.

I concur. Not time to sell yet. Need more people to dig out their cash from the mattress and buy. I don't know when I will sell, only that it is not now.

Of course, just because we agree does not mean that we cannot both be wrong.

+1. The rally is far stronger than I would ever have hoped for, and it is great to ride the wave. I am rebalancing in small amounts to keep my AA steady.

 

[Lsbcal]

...I am rebalancing in small amounts to keep my AA steady.

That is my tactic too. I set the equities to my max tolerable risk level. Then don't let it get much above that. Helps that our $'s are in retirement accounts so no tax implications.

 

[NW-Bound]

The market is going up on momentum right now. A lot of expectations is getting baked in. It's all rosy. If things don't work out as hoped, and corporate earnings do not go up according to the stock price, there will be hell to pay.

As far as irrational exuberance, we are not there yet. It has to be at the point where people kick themselves for not being 100% in stocks. When will we get there, or if we ever will, who knows?

"The future is so bright, I've got to wear shades..." I am tempted to post that song here once more, but nah...

 

[GravitySucks]

Just make sure you get out by Tuesday, August 22nd 1:45 PM.
If things are still looking rosy when I get back home next month I think I'll sell some equity funds and buy another rung or two on the bond ladder and call it rebalancing instead of market timing.

 

[NW-Bound]

I do not frequent the CNBC web pages, but in searching for an article mentioned on another thread, found this one explaining the current bull run. It says that institutional investors are rotating into stocks via credit funds.

...public pensions have put more than $300 billion, by Reynolds's estimate, into credit funds (which then amplify that sum using leverage) over the past decade... The credit funds selected commonly take bearish short positions, which are lately getting mauled in this market. The "short squeeze" is leading to ever more bullish conditions in the credit market, which in turn creates ever more bullish conditions in the stock market.
​

The article then adds:

"This credit-led bull market is likely going to persist until two years after" the curve inverts, or "another 3-6 years" from now, says Reynolds."​

Brian Reynolds is the chief market strategist at New Albion Partners. The article implies that another bubble is in the making. Halleluja!

See: Here is what's really behind the record-breaking Trump rally.

 

[Montecfo]

I TEND to think we run until Trump releases his tax plan. Might begin to get some profit taking at that point.

Having said that, we are in a pretty good environment it seem to me. Oil prices are moderate (and likely to stay there for the near term), while headline unemployment is low, there are lots of not looking and underemployed people who can re-enter the job market, interest rates, though rising off historic lows, are not likely to rise sharply anytime soon and we have a more positive business environment than we have in years.

Of course, do not try this at home, objects in the year view mirror may be closer than they appear, and my views, though believed accurate at the time, are measured by weight, not volume, may have settled and become misshapen during typing and posting, and thus your results may vary.

 

[Lsbcal]

...
The article then adds:

"This credit-led bull market is likely going to persist until two years after" the curve inverts, or "another 3-6 years" from now, says Reynolds."​

...

I don't really understand the "credit-led bull market" story. Not that this is an incorrect thesis. Would like to see some Fed curves that support that so I can see how this played out in previous markets.

What I had heard of the November rally was that it was really a reaction to better earnings and not to politics. Greenspan in a PBS interview thought that the recent rallies were because some of the deregulation will help earnings.

Yield curve inversion is a leading indicator of market declines probably associated with recessions. But 1962 saw a very bad decline without a yield curve inversion. That was quickly erased (1 year to go down and back up) because the economy did not go into recession. So we could have a sharp correction that doesn't kill off the overall trend.

 

[NW-Bound]

The earnings have been improving since early 2016. That's correct.

The problem is the stock prices overshoot that earning expectations. The bar has been raised higher for the earnings to surpass before stock prices can go up more.

 

[Lsbcal]

I just looked at earnings data from Shiller. He takes it from the SP500 and corrects it for inflation which has been minor. I was surprised. Comparing the first 9 months of 2016 with the first 9 months of 2015, total SP500 earnings were down about 10%.

Then I looked up the recent earnings here: https://insight.factset.com/hubfs/R.../Earnings Insight/Earnings_Insight_022417.pdf

This states:

The fourth quarter will mark the first time the index has seen year over year growth in earnings for two consecutive quarters since Q4 2014 and Q1 2015

So I guess the market is kind of rational at least through the 4th quarter of 2016.

 

[Koolau]

Most of this stuff is too complicated for me, or, more to the point, I have not educated myself sufficiently to follow all the discussions. Still, when ever we talk about what the markets will or won't do in the near term, I kind of think back to what got most of us to where we are now (I guess that's some what of an assumption on my part since I certainly don't know what every one has done or is doing.) Still, most of us have had a "rational" plan of picking an AA and generally rebalancing occasionally. If we change our AA it's probably because we are aging rather than because we think we can outguess the markets. I could be wrong so YMMV.