In conclusion: Measures of investor sentiment and anecdotal conversations with investors make us aware that a mood shift has occurred and that some investors are clearly worried that US stock indices have risen.  Our studies of trends and sentiment suggest that the current combination of the two may present an opportunity to return portfolios closer to long-term target norms, but do not indicate to us that risk should be brought below those norms.  

David Fuller's view

This is a sensible comment from RiverFront. 

As an overall view, this bull market since 2009 had been characterised by its lack of euphoria, despite big gains for indices against a monetary policy background which has been very stimulative.  Yes, some individual shares have done well but there has been little overall euphoria.  In fact, a number of once favoured hedge-funds have damaged themselves by shorting the US and UK stock markets.  This has often been described as ‘the most hated bull market in history’.

That changed with Donald Trump’s Presidential Election win on November 8^th.  His stimulative proposals launched what is arguably the first across the board, broad stock market rally in many years.  In fact, various US indices had ranged for two or more years before the Trump bull-run. 

Short-term indicators are currently overbought, large short positions have been covered and buying power has been reduced. This has worried some commentators and most notably value investors.  Therefore it would not be surprising to see a consolidation of recent gains and some investors will be wary of tax selling as we enter 2017, not least after last January’s sharp selloff. 

However, in an upside momentum move which we may see continuing in Q1 as investors ditch group think concerning the ‘new normal’ of deflation and minimal GDP growth, conservative investors may wish to gradually reduce long exposure.  However, I am unlikely to do so unless some of the following occurs: 1) surging US indices well into Q1, 2) a further sharp rise in the Dollar Index, 3) US 10-year Treasury yields above 3%.   

(See also Tuesday’s comments.)

Here is a PDF of The Weekly View.