Stock Market Far From Being the Most Hated
On a regular basis, we are told the stock market rally we have seen since 2009 is the most hated one ever. But it might be a good idea to throw this narrative out the window. Rather, we should be calling it the most loved stock market rally ever.
It’s kind of astonishing how bullish everyone is on the stock market. At the same time, it’s very scary. Remember that market tops form at the time of peak optimism.
Need examples? Look at the exchange-traded fund (ETF) flows. According to the Investment Company Institute, in 2017, stock ETFs witnessed inflows of $186.4 billion. (Source: “Long-Term Mutual Fund and Exchange-Traded Fund (ETF) Flows,” Investment Company Institute, last accessed February 12, 2018.)
Between 2015 and 2016, stock ETFs witnessed inflows of 29.15 billion. And in terms of simple math, in 2017, six times more money went into stock ETFs than 2015 and 2016 combined.
If you still think we have the most hated stock market, then look at “corporate America.” Over the past few years, they have become major stock buyers. According to the data from the S&P Dow Jones Indices, between 2014 and 2016, S&P 500 companies purchased $1.66 trillion worth of their own stocks. Putting $1.66 trillion in perspective, it’s roughly similar to the entire gross domestic product (GDP) of Canada. (Source: “S&P 500 Stock Buybacks,” S&P Dow Jones Indices, last accessed February 12, 2018.)
In 2017, S&P 500 companies didn’t stop either. In the first two quarters, they bought back $253.26 billion worth of their own shares. In the third quarter, they spent another $129.2 billion on share buybacks. (Source: “S&P 500 Q3 2017 Buybacks Increase 7.5% to $129.2 Billion,” The Wall Street Journal, December 13, 2017.)
If this doesn’t say most loved stock market ever, then what will?
Stock Market Outlook for the Next Eight Years
Dear reader, I suggest you do not get lured by the noise that suggests stock markets could rally, and by how not many investors are buying stocks.
The data is very loud and clear. It’s not only the investors who are buying stocks; companies are buying them too.
In the midst of all this, you must remember that when everyone seems to be involved, it’s time to pause and reflect. It’s never really a good sign and doesn’t end well. It’s usually when markets are nearing their tops.
Here’s one more thing: when everyone is involved, the swings on the markets could get bigger very quickly. A minor sell-off could become something very big. We saw an episode of this recently, when the Dow Jones Industrial Average dropped over 2,000 points in just matter of a few days.
I will end with this bold statement: stock markets have seen a massive move to the upside in the past eight or so years. Key stock indices like the S&P 500 and Dow Jones Industrial Average have more than doubled from their lows. In the next eight years, the returns may not be as stellar as the prior eight. We could actually see a stock market crash sooner than later, and this crash could be the mother of all crashes.