Investors sprinted into December on tap to buy stocks, and buy they did. The S&P 500 closed at a fresh record high and the Nasdaq crossed into one early in the trading meeting. Market gains were led by regional banks — which are a key component of a cyclical bull market — and travel stocks. Oil and get-up-and-go stocks, which had a blistering November, sold off some of those gains.
This article is an excerpt from our unsparing The Market Sum newsletter. Sign up here to receive it in your inbox daily.
There were rumblings of a bipartisan stimulus parcel from Congress today in the $908 billion neighborhood, but Senate Majority Leader Mitch McConnell extinguished those desires. He did say that President Trump favored a direct stimulus package totaling some $500 billion that intent go out to Americans by year-end. Who knows if that will happen, but at least they are talking.
Investors have their ample bull on these days after reluctantly wearing the horns all year. After pulling record amounts out of joint funds and ETFs in October, they piled back in last month and put the money to work in recovery sectors and shares. We’ll see how long their bullishness lasts. Bitcoin bulls have no fear right now.
Overly Bullish
New market records are brace of this, but sentiment tells a similar tale. The Bull/Bear ratio, which is a measure of both individual and institutional sentimentality across multiple newsletters (not ours), is at its highest bullish level ever. You read that right.
Like a lot of sentimentalism view indicators, this one could also be viewed as a Chart courtesy Bianco Research.
So Why is the Market at a Record High?
That’s a to a great extent good question and there are a few answers.
- While investors pulled money out of ETFs and mutual funds at record levels this year, a lot of flush went into the biggest stocks like Apple, Amazon, and Microsoft. Their enormous market caps have planned the weight to lift market-weighted indexes like the S&P 500 and the Nasdaq with them.
- While mega-tech stocks participate in traded lower since early November, a lot of that money rotated into cyclical and recovery-based stocks, which is why the DJIA hit an all-time weighty last week.
- While mutual funds saw the biggest outflows, investors have many more ways, above ETFs, to access the stock market and individual stocks than they used to.
- Those 20 million new investors pull someones leg been heavy buyers of individual stocks and fractional shares of stocks.
Does any of this mean that the supply market is guaranteed to go higher? Absolutely not. But if you are a market participant and you are in it for the returns, it’s hard to find them anywhere else — first of all with the recovery looking strong in 2021.