Two respected stock market analysts in particular have recently warned about real dangers to the running bull market in stocks. Art Cashin of UBS and Alain Bokobza of Societe Generale have both pointed out areas of serious and mounting concern.
Cashin calls his warning the “split personality” of the stock market. He is predicting this will knock the wind right out of Wall Street’s sails. Cashin stated a week ago that:
“We’ve been setting record new highs, and often the breadth has been negative. We’ve had more declines than advances. We’re starting to get more new lows than new highs; 30 percent of the stocks in the S&P are down for the year. Those are very unusual combinations with new record highs.”
Cashin is referring to the fact that fewer and fewer stocks are participating in the rally now. In fact, many have started seriously going the other way. Cashin has been a veteran of the markets since 1964, giving him a perspective most market participants today lack. He is not alone in pointing out the risks investors are taking these days.
Alain Bokobza of Societe Generale also recently shared a research report in which he warned against the over optimism of investors. Specifically, he believes they are assuming far too many risks in an environment that features low volatility. The Societe Generale Bank strategists see this as leading to a possibly significant fall. As Bokobza warned:
“In a goldilocks scenario of low interest rates, abundant liquidity, stable growth… investors continue to push asset prices, volatility, and leverage to historical extremes. Yet, a low volatility carry environment with rather extreme positioning is a dangerous combination, which we recently likened to dancing on the rim of a volcano.”
If this is not warning enough, Bokobza has further drawn the comparison of the United States’ stock markets being like a frog in boiling water. The frog is not yet aware of the dangers besetting it. This is why he further warned, “Today’s current dynamics put the US equity market at a similar risk as the frog.”
Is Your Retirement Portfolio Protected from the Stock Market Divergence?
When stocks start to exhibit a split personality with many of them making new lows while others are making new highs, you can expect a correction of some sort to follow. The question is how severe will it be? As Cashin has pointed out, it has been a long time since a significant pullback in markets materialized. Once it is underway, it is too late to protect your retirement holdings.
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