Bear has become bull in the ranks of Wall Street handicappers, who’ve been forced to raise forecasts to catch up with the rally. Take David Kostin at Goldman Sachs Group Inc. After under-estimating this year’s advance by roughly 10 percent, the strategist last month boosted his 2018 target by 350 points to 2,850.
“You have people just throw in the towel and ride the wave,” said Jim Paulsen, Leuthold Group Inc.’s chief investment strategist. “It’s been such a strong year, such a strong rally, and the pressure builds.”
On Wall Street, ascending prices have a tendency to breed more bulls than bears. It’s conditioning: if every time you issue a sell the market climbs 10 percent, you’ll probably to stop issuing them. And while betting against stocks has been a losing proposition since 2009, this year the futility has turned epic. A Goldman index tracking the most-shorted shares has climbed 18 percent since January, burning anyone on the wrong side.
It’s not that nobody is short, it’s that they don’t want to talk about it. Bearish bets as a percentage of total U.S. shares available for trading is hovering around 4 percent, higher than the average of 3.8 percent, according to exchange data compiled by Bloomberg that goes back to 2008.
“I don’t think the bears have left the market. I just think they’re very quiet after a year like this,” said Joseph Tanious, a senior investment strategist at Bessemer Trust in Los Angeles, which oversees more than $100 billion. “Bears will always be bears and bulls will always be bulls, but they may go dormant from time to time, or they may be less vocal.”
Right now nothing can drown out the din of euphoria, a missing ingredient for more than a decade. According to Morgan Stanley, unspent money is disappearing from individual brokerage accounts as the rally lures buyers, driving cash levels to a record low. Leverage among hedge fund managers who speculate on rising and falling shares is approaching its 2007 high.
Then there’s bitcoin mania, sending everything tied to the crypto/blockchain bloc skyrocketing. One repentant bear is Trump himself, who in 2016 called equities a “ big bubble” and now regularly tweets about the glory of the bull market. Is all this optimism a good thing?
“Running with the bulls can be dangerous,” Jeff Hussey, chief investment officer at Russell Investments, said in a report earlier this month. “It’s easy to get swept up in the elation of the crowd and underestimate the risks.”
This article was provided by Bloomberg News.