It was a grand slam.
Major U.S. stock markets were positively euphoric following President Trump’s speech on
February 28. Optimism about the new administration’s pro-growth policies propelled the four
major U.S. stock indices to record highs, despite a dearth of policy details, reported
It’s hard to pinpoint exactly why stocks have moved so far, so quickly. However, it appears
that mom-and-pop investors have become quite enthusiastic about the asset class according
to data from JPMorgan Chase cited by Bloomberg. While institutional investors (pensions,
insurance companies, etc.) have been reducing exposure to stocks, smaller investors have
been loading up on shares.
CNBC reported some industry professionals, including Goldman’s chief U.S. equity strategist
David Kostin, believe stocks have become too highly valued. ZeroHedge.com quoted Kostin, who said:
“Cognitive dissonance exists in the U.S. stock market. S&P 500 is up 10 percent since the
election despite negative EPS [earnings per share] revisions from sell-side analysts…
Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely
path forward. On the one hand, investors, corporate managers, and macroeconomic survey
data suggest an increase in optimism about future economic growth. In contrast, sell-side
analysts have cut consensus 2017E [estimated] adjusted EPS forecasts by 1 percent since the
election and ‘hard’ macroeconomic data show only modest improvement.”
Financial Times reported pessimism prevails in the bond market. One bond market
professional said, “The bond market is taking a totally different view from the equity market.
Blowing raspberries is a good way to put it…There’s no belief that the growth agenda will be
So, is strong economic growth ahead? Do bond investors or stocks investors have it right?
Are institutional investors or mom-and-pop investors positioning themselves correctly? Only
time will tell.