Column-The 5 charts flashing purple for U.S. fairness bulls: McGeever

By Jamie McGeever

ORLANDO, Florida (Reuters) – Because the basic market cliche goes, traders ought to fear most when the consensus is overwhelmingly optimistic and be bullish when it is overwhelmingly bearish.

    If traders apply this logic to the 2025 U.S. inventory market outlook, they need to be working for the hills.

    By many measures – sentiment surveys, positioning, valuations – the helicopter view of Wall Road has not often been rosier.

This wave of ‘U.S. exceptionalism’ will not catch anybody unawares. It has been constructing to a crescendo all yr because the AI and tech increase steered the U.S. economic system away from any type of touchdown – arduous or mushy – and fueled the inventory market’s eye-popping outperformance.

    However among the numbers are flashing purple and never only for the die-hard contrarians. In actual fact, the wave of optimism has been so highly effective that it has swept away among the Road’s most distinguished bears.

    Even ‘Dr Doom’ Nouriel Roubini and David Rosenberg of Rosenberg Analysis have just lately appeared to embrace the ‘TINA’ (There Is No Various) view on U.S. shares.

    When the bears are capitulating, it is positively time to fret, proper?

    Most likely, except it truly is totally different this time. And the final three years counsel this may very well be the case, because the post-Covid world has been in contrast to something present in financial textbooks and market playbooks.

    In keeping with Dario Perkins at TS Lombard, U.S. market and macro bears have repeatedly misinterpret the post-COVID “pretend cycle”. They have been fooled by the inverted yield curve, put an excessive amount of emphasis on (mis)main indicators, and misinterpreted labor market normalization as weak point.

    “Because the economic system returns to extra common drivers, this form of error ought to cease,” Perkins says. Hopefully, the bears are simply “embracing actuality, having been excessively pessimistic” for 3 years.

    Which will become the case, besides, it will hardly be a return to enterprise as traditional. Certainly, there’s rather a lot in regards to the U.S. fairness market proper now that’s extremely uncommon.

    The truth that the S&P 500 and Nasdaq are at report highs shouldn’t be considered one of them. Shares go up over time because the economic system grows and productiveness, innovation and firm income rise. However there are grounds for warning.

    The distinction between U.S. and European fairness valuations has by no means been wider; Wall Road’s share of the world fairness market cap has by no means been larger; and U.S. shoppers’ inventory market outlook for the approaching 12 months has by no means been extra optimistic.   

    Excessive valuations aren’t any assure of an imminent crash or correction. However as AXA Funding Managers’ Chris Iggo rightly observes, they alter the chance calculus.

    Nonetheless, a correction wants a set off. What may that be this time round?

Valuations might lastly spook traders, and the unwind turns into an unraveling. Maybe it is U.S. President-elect Donald Trump’s coverage agenda, the delicate political-economic axis in Europe, or China’s financial struggles. Or possibly some underlying danger that nobody is taking note of.

    The S&P 500 has delivered whole returns of round 35% because the Fed’s final fee hike in July 2023 and is about to report two consecutive years with 25%+ whole returns.

   As Iggo famous, “Given the backdrop, a 3rd is perhaps stretching it.”

(The opinions expressed listed here are these of the creator, a columnist for Reuters.)

(By Jamie McGeever; Modifying by Kirsten Donovan)