Global equities add $2 trillion in market value in less than 2 weeks

NEW YORK: The sound of euphoria just got a bit louder.

The new year isn’t even two weeks old, and already $2.1 trillion has been added to the market capitalisation of global equities. The market is verging on such overbought levels that not even reliably bullish analysts can keep up with the new highs.


Optimism is upending the oncedour mood of a rally noted for the hate it inspired. The bull market, now in its ninth year, has finally reached the point of euphoria, said Morgan Stanley’s US equity strategists.

“Now, we have seen a total reversal with people having a hard time even imagining how the market could decline,” they wrote in a report dated Monday. “We must admit the speed and relentlessness of the move is a bit troubling.”

A melt-up, crude and tax rally, equity euphoria — call it what you may, but finding cynicism is not an easy task. Here are five signs that confidence is budding, all of which may either embolden the bulls or cause the bears to add more supplies to their doomsday bunkers.

It’s not just Wall Street embracing the animal spirits powering equities to their highest levels on record. About 60 per cent of individual investors think the stock market will go higher in the next six months, the highest percent since 2010, according to a survey by the American Association of Individual Investors. For every bearish investor, there are nearly four bulls.

Maybe too many dire predictions have failed to come true, but US managers are now finding it difficult to bet that the rally loses steam. With short positions on the decline, net leverage among institutional investors has been steadily rising over the past few months to the highest level since 2015, according data on Morgan Stanley’s prime brokerage.

Likewise, short interest on the largest exchange-traded fund tracking the S&P 500 is the lowest level on record, while shorts on the largest emerging-market fund are the lowest in over a year, IHS Markit data show.

The sell side is also on board. Bank of America Corp.’s oft-cited contrarian measure, its sell side indicator that uses the average of Wall Street strategists’ equity-allocation recommendations, rose for the third straight month to the highest level in six years.

Though it hasn’t hit a sell signal yet, at this pace the indicator will reach a tipping point by the end of January, the bank’s equity strategy team said.

Considering the Cboe Volatility Index of stock-options prices is hovering near a record low, it comes as no surprise that positioning in the options market contains hints of exuberance throughout.