We all know the markets are driven by two sentiments: fear and greed. Currently, investors show no fear but plenty of greed as they pile into stocks as if it were 1999 all over again. The much-watched Investors Intelligence survey of investment newsletter writers last week reported that the percentage of bears was down to 14.4% - a level not seen in 26 years - 1987, before the crash.
The Consensus Bullish Sentiment Index is currently at 77% - putting it firmly in the "market is overbought" territory. After four consecutive years of withdrawals (2009-2012) investors are now pouring money into stock mutual funds at the fastest pace in thirteen years (since the 2000 top). Barron's estimates that equity mutual funds and ETFs are on pace to receive more than $450 billion in inflows this year, more than the previous four years combined. Investors are chasing "story" stocks again. Anything related to the "cloud," "Big-Data," social media and 3-D printing is fair game to drive into the stratosphere of infinite P/Es. The Shiller cyclically adjusted price-to-earnings (P/E) ratio is now over 25, a level only exceeded three times before - prior to the 1929, 2000, and 2007 crashes. According to Credit Suisse, U.S. nonfinancial stocks are 45% more expensive on a price-to-book basis than their global peers, an excess not seen since the 2000 crash period.
The Dow Jones Industrials and S&P 500 indices have risen for eight consecutive weeks, the S&P 500 has leapt 26.6% year to date and the Nasdaq Composite index has soared 34.5%. There hasn't been a 10% correction since the fall of 2011. Initial public offerings (IPOs) this year-to-date are more than at any time since 2000, with more than 60% of the IPOs funding money-losing companies. Secondary stock offerings (over $160 billion) are at the heaviest pace ever (since Dealogic began keeping records in 1995). Fear has left the building.
~ Fred Hickey, editor, The High-Tech Strategist, "Fear Will Make a Comeback," December 1, 2013