Overly Optimistic

I have share a lot of my own thoughts. Maybe it is also worthwhile to share others' opinion about the current market. Below is excerpted from a post by Lance Roberts Chief Portfolio Strategist/Economist for RIA Advisors. Regardless how you feel about the current market, a second opinion may serve well to put things into perspective.

Just a quick word about the current market sentiment. I have been in dozens of investment chat groups. What I have seen today, oh boy, it is an unbelievable elated mood everywhere I go as the result of the Friday's surprisingly upbeat jobs report and the amazingly strong market uptrend. Everyone is talking about how great they are doing lately and how excited they are to expect further up move to soon see new highs. It is indeed a kind of exuberant euphoria I'd call it, that is rarely seen. Given how many groups I have been in, I think I see a fairly good representation of the general investors' mood at the moment, which is consistent with what this blog is talking about: Overly Optimistic! As a contrarian, I must say I think a good top is forming and we may very soon see a sizable correction, even if not a Mar low testing. This is usually occurring when no one believes the market can go down further. Remember, when the Mar low came, no one at that time believed the market could go up. Now is just the exact opposite sentiment-wise. 

Enjoy the bull market as long as you can but also watch out underneath. The rug could be pulled out suddenly without your prior knowing!!    

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Market Support Deterioration

Such is particularly the case as the market rally to date has been defined by the five largest stocks in the index. Via Goldman Sachs:

"Broader participation in the rally will be needed for the aggregate S&P 500 index to climb meaningfully higher. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index."

Overly Optimistic

Lastly, investors remain overly optimistic that corporate earnings and profits, will catch up with elevated asset prices. Historically, such has never been the case, and prices have ultimately "caught down" to fundamental realities.

There is more than a casual relationship between the cumulative growth of the financial market to corporate profits. While deviations can last for a while, eventually, those gaps are filled.

As my colleague Victor Adair at Polar Trading:

"The growing divergence between the 'stock market' and the economy the past couple of months might be a warning flag that Mr. Market is too exuberant. The Presidential election is just over 5-months away with polls showing that Biden may be the next President. The U.S./China tensions have been escalating, and the virus's first wave continues to spread around the globe. However, the 'stock market' continues to be pulled higher by a handful of 'Megacaps.' The late Friday rally after Trump's 'punish China' speech shows 'animal spirits' are alive and well!"