The biggest investors are not ready for financial crisis

By Elliot Bullman

Active mutual fund managers are the most bullish on US stocks since 2006.

A recentsurveyfrom theNational Association of Active Investment Managers(NAAIM) shows that active mutual fund managers are the most bullish on US stocks since it began collecting data in 2006. It's part of a weekly assessment conducted by the NAAIM that gauges the degree of overall equity exposure for all of its member firms.

eee.png

It's no coincidence that this unprecedented level of confidence comes at a time when so many things are simultaneously going right for the stock market. Let's run down three of the biggest drivers of future bullishness, all of which also explain the market's run up to record highs:

Earnings growth

Profit expansion has historically been the biggest driver of equity gains during the 8 1/2-yearbull market, which stands as the second-longest on record. At its core, appreciation in major stock indexes is built around the ability of companies to grow their bottom lines.

TheS&P 500has seen earnings growth in the past five quarters after a multi-year profit recession. This resurgence has mirrored a climb to new all-time highs for the benchmark gauge. And looking ahead, the S&P 500 is expected to expand profits by 13% in 2018, according to estimates compiled by Bloomberg.

eee1.png

Tax reform

While the stock market certainly fluctuated for months on expectations around theGOP tax bill, the consensus among Wall Street analysts is that its effect hasn't been fully priced in. As such, since the legislation passed, multiple firms have boosted their 2018 year-end price targets.

In a recent note, UBS said the S&P 500 could end upsurging 25%in 2018 on the back of tax reform. Meanwhile, JPMorganboosted its forecast to 3,000this week, citing the underpriced impact of the tax bill.

"The upcoming reduction of US corporate tax rates may be one of the biggest positive catalysts for US equities this cycle,"Marko Kolanovic, who serves as JPMorgan's global head of quantitative and derivatives strategy, wrote in a client note. "We think that little is priced into the market and hence there is potential for market upside."

A buy-the-dip mentality

eee2.png

Stock market pullbacks don't worry investors anymore — they embolden them.

For much of the 8 1/2-year equity bull market, traders have deployed a strategy called"buying the dip,"which involves adding to bullish positions whenever stocks drop. Even the briefest market decline gives these traders a chance to buy more of a stock that they're into at a lower price.

It's a tactic that's been crucial in keeping the stock market rally afloat, with the ever-present undercurrent of optimism providing a backstop of sorts formajor indexes. And it's been so effective that investors are now embracing brief rough patches, says Bank of America Merrill Lynch.

"Investors no longer fear shocks but love them," a group of strategists led by Nitin Saksena wrote in a client note. "Since 2013, central banks have stepped in — or communicated that they may step in — to protect markets, leaving investors confident enough to buy the dip."

RELATED NEWS

  • Spain and Mexico’s Trade Relations Curdle over Manchego DisputeSpain and Mexico’s Trade Relations Curdle over Manchego Dispute
  • Cape Town Water crisis: Cape Town Water crisis: 'Day Zero' Draws Near
  • MORGAN STANLEY: Here are the 6 internet stocks to bet on in 2018MORGAN STANLEY: Here are the 6 internet stocks to bet on in 2018
  • Ford announces $11B investment, 40 electrified vehicles by 2022 at Detroit Motor ShowFord announces $11B investment, 40 electrified vehicles by 2022 at Detroit Motor Show
  • Automobile Revenues will fall 40% due to Electric and Autonomous VehiclesAutomobile Revenues will fall 40% due to Electric and Autonomous Vehicles
  • Mexico debuts its best startups for 2018 at CESMexico debuts its best startups for 2018 at CES
  • Inside the Secret Society Running the World of CryptocurrencyInside the Secret Society Running the World of Cryptocurrency
  • Opinion: Who Will Profit Off the Next Crash?Opinion: Who Will Profit Off the Next Crash?
  • This is how Jeff Bezos will support the This is how Jeff Bezos will support the 'dreamers'
  • Oil Reaches $70 a Barrel for First Time in Three YearsOil Reaches $70 a Barrel for First Time in Three Years
  • Peso predicted to make comeback in 2018: BloombergPeso predicted to make comeback in 2018: Bloomberg
  • Chihuahua´s governor denounces Government reprisals for PRI corruption investigationChihuahua´s governor denounces Government reprisals for PRI corruption investigation
WATCH LIVE TV



Most Read Articles
Most Watched Videos
  • Generations Riviera Maya
  • Mayair

Language

Mexico News Network
All rights Reserved 2018