This Market Just Won’t Quit


In the old days, a disappointing monthly jobs report like the one we got Friday morning would have given investors pause. This time, they didn’t even blink.

In December the U.S. economy added only 148,000 jobs, a big drop from November’s 228,000. Unemployment stayed at 4.1% and wage growth remained a tepid 2.5% annually.

Maybe that led savvy investors to conclude that the Federal Reserve under new chairman Jerome (Jay) Powell would stick to its roadmap of only three increases in the federal funds rate this year.

Or maybe they didn’t care and just kept buying.

On Friday the S&P 500 index closed—yawn—at yet another all-time record high above 2,700, while the Dow Jones Industrial Average finished above the magic 25,000 threshold again while the Nasdaq Composite index easily topped lucky 7,000 once more. The increase of 2% since trading resumed Tuesday was the best weekly gain in a year.

Is this for real or did investors imbibe too much bubbly on New Year’s Eve?

Well, it’s at least partly grounded in reality. About two million new jobs were created in the U.S. in 2017, roughly in line with the pace of the last couple of years. GDP growth has topped 3% over the last two quarters and global GDP is growing in sync for the first time in years. The huge corporate tax cuts signed into law before Christmas will boost publicly traded companies’ profits by a lot, and higher earnings usually mean higher share prices.

But you can’t ignore those animal spirits.

The Wells Fargo/Gallup Investor and Retirement Optimism index (which I consider the most accurate gauge of broad individual investor sentiment) just recorded its highest reading since 2000. The better known AAII (American Association of Individual Investors) investor sentiment survey, which covers a narrower universe of active investors and stock pickers, notched 60% bullish sentiment in its January 3rd poll, the most bullish result in seven years.

Institutional sentiment indexes tracked by Barron’s also are at bullish peaks, and for the first time in years Citigroup’s Panic/Euphoria Model has crossed into euphoric territory.

And speaking of euphoria, the famed market analyst Jeremy Grantham recently penned a research piece that said we’re probably at the beginning of a melt-up, which, he wrote, could last another year and a half and take stocks much higher.

Growing earnings and global economies, the Fed remaining on a cautious track, and strongly bullish institutional and individual investors—what’s not to like? Only a sudden, unlikely burst of inflation and a somewhat more likely geopolitical crisis can stop this runaway train, which looks like it’s a long way from crashing.