And just like that, Wall Street stocks squeezed out fresh all-time highs on Tuesday.
Here’s one bird’s-eye view on that session that left the S&P 500 and Nasdaq at record closing highs from Michael Baele, senior portfolio manager at U.S. Bank Private Wealth Management.
He told the WSJ it’s almost like the market is “calling a mulligan,” a golfing term which means having a second attempt, on what transpired in the fourth quarter. Long gone are worries over trade spats or the Fed pushing up rates, he says.
Well-received earnings played a big part in driving those gains. And more heavy lifting for stocks via corporate results may be on the way for Wednesday, with reports rolling out from Boeing, Caterpillar, Facebook and Microsoft.
But our call of the day, from Naeem Aslam, analyst at ThinkMarkets UK, says investors should be wary of these latest gains for equities. He warns clients “not be fooled…as smart money is ready to short.”
Aslam explains that even as nearly 79% of S&P 500 companies have beaten forecasts in the first-quarter reporting season thus far, hedge funds or institutional investors don’t seem to have bought into this.
He draws his evidence from recent Commodity Futures Trading Commission data, which offers up a gauge of how investors, such as hedge funds, are positioned in U.S. equity markets. Latest data shows that bullish sentiment for the S&P decreased by 36%, meaning more of those investors are betting on a fall for stocks, or a taking “short” position.
“This shows that smart money is ready to bank big if the market falls again. Moreover, one thing is for certain when it comes to smart money, it doesn’t like to play the catch-up game,” said Aslam.
It should be noted that the biggest investors, in all their humanness, do not always get their market calls right. When the S&P tumbled all the way down to 2,351 in December, Aslam said many doubted there was a strong catalyst that could drive stocks back to record highs. Deutsche Bank strategist Jim Reid said, in a note to clients, that recuperation has taken just over three months, with the speed and strength rivaling the bounce seen after the markets bottomed out in March 2009.
Count Morgan Stanley’s strategist Mike Wilson as among those who didn’t expect stocks to be back at all-time highs by April, but he’s now in the camp that 3,000 for the S&P isn’t too far off. Even as the index rises, it still remains some distance away from the most bullish end-year forecasts on Wall Street, such as 3,025 expected by Credit Suisse Jonathan Golub.
Aslam says the institutional investors may be getting this call wrong, but says one thing keeping them out is the view that stocks are too expensive—a debate that rages on.