When it comes to the relentlessly rising U.S. stock market, we have nothing to fear but lack of fear itself, according to money manager Chris Puplava of PFS Group.
Puplava said stocks are touching new highs despite worrisome economic reports, and investors are becoming too complacent.
"What is surprising is the resiliency of the U.S. market in the face of such a sharp decline in positive economic surprises. Declines of the current magnitude have often marked the big corrections we've seen during the bull market," he wrote on the Financial Sense blog
Puplava suggested some artificial props could be helping keep equities aloft.
The primary liquidity support is coming from the forthcoming European Central Banks quantitative easing program, he concluded. Another is a nascent recovery in the junk bond market, and the yen carry trade could also help the market, since speculators often use their yen borrowings to buy stocks.
"Another liquidity spigot that is currently flowing strongly is the growth in commercial bank credit," Puplava wrote. "While the Fed may be slowing down its balance sheet, commercial banks are doing just the opposite and picking up the Fed's slack."
In his view, one ominous sign is the growth of margin debt, as investors borrow more money to buy stocks, creating risk.
"While several liquidity spigots are flowing and helping to levitate the stock market, there is one area of monetary liquidity that is moving in the opposite direction and that is margin credit. Typically most bear markets, recessions . . . and sharp corrections are associated with a contraction in margin credit and we are currently showing the strongest decline in margin credit growth since late 2011 to early 2012."
In a closing note of optimism, Puplava said any weakness in U.S. equities is likely to be short-lived. "If stocks do stumble in the days and weeks ahead I wouldn't expect much downside momentum given U.S. and global growth are, in my opinion, likely to reaccelerate in the months ahead."
As evidence of too much complacency, Puplava said the National Association of Active Investment Managers (NAAIM) Exposure Index, which represents the average exposure to U.S. stocks reported by active managers, has a current reading of 99.23, which he described as "the upper extreme seen over the last decade."
The latest The Ticker Sense Blogger Sentiment Poll
from Birinyi Associates, a survey of noted investment bloggers that asks them to describe their stock outlook for the next 30 days, is decidedly bullish on that bellwether measure of U.S. stocks, the S&P 500.
The Ticker Sense survey found 58.33 percent of investment bloggers were bullish in the Feb. 23-27 poll, 8.33 percent were neutral and only 33.33 percent were bearish.
Similarly, the latest American Association of Individual Investors survey
, for the week ended Feb. 25, found 45.4 percent were bullish, 34.3 percent were neutral and only 20.3 percent were bearish.
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