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In my last blog post, dated 8 July 2020, I opined that the US equity bull market was “back, broad, and bold.” With the S&P 500 Index now up more than 50% from its March 23 low, I think that description more or less remains accurate as the summer winds down.
The market’s seemingly relentless march higher naturally begs the question of whether or not an equity bubble has formed. A lot of ink has been spilled in that direction lately, with many commentators (including some of my own colleagues) suggesting that we may indeed be in an equity bubble akin to that of 1999.
A large cohort of market participants appears to agree: The percentage of bearish respondents to the weekly AAII Investor Survey has stayed atop the 40% threshold long enough that its 40-week average is now at levels not seen since 2009. (Prior to that, it was in 2002 and 1990.) Interestingly, that 40-week average actually…
To me, one of the striking features of the current US stock-market rally is that many investor sentiment and positioning indicators have stayed depressed, even as equity prices have surged. (Some indicators have risen of late, but the ones I pay the most attention to have not.)
To a degree, the weak sentiment is understandable, given the massive blow that COVID-19 delivered to the economy and financial markets. It’s also quite plausible that the recent spike in unemployment could have adverse economic knock-on effects, potentially causing equities to reverse course. On the other hand: 1) we may have reached a nadir in growth; 2) the market itself bottomed seven weeks ago; and 3) the US policy response to the crisis has been swift and aggressive. Perhaps the market won’t…
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