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Risk On, Baby! Record High Stocks Stoke Investor Demand


Once upon a time, three-and-a-half long weeks ago, there was fear that the world was unraveling, the markets were set to crash, the tiny euro zone nation Cyprus was about to implode, and budget cuts would throw us into recession again. Somehow, amidst all that worry and doubt, we not only survived, but thrived. The sun is shining, spring has finally sprung and investors have come out of the holes and pushed the stock indexes to new highs.

How did this happen? Where did all of that risk go? Can it possibly last?

All good questions, as my co-host Jeff Macke and I discuss in the attached video, and all part of a perfect storm of confusion for investors.

It is indisputable that something has changed the past week, as previously lagging sectors and cyclicals have suddenly caught fire and are now everybody's darlings. While professionals refer to this simply as "sector rotation," they frequently don't tackle the more troubling question of why investors suddenly feel more confident and risky with their money.

Related: The Next New Record For Stocks Will Be Earnings

Further complicating things, the latest AAII sentiment survey (from the American Association of Individual Investors) shows bullishness plunging to just 19% last week, while snarling bears account for more than 54% of the respondents. Juxtapose that with a drop in short interest on the S&P 500 to one-year lows, and you start to get a feeling for the tortured rift going on in the market.

At the same time, the volatility index (^VIX) is approaching $12 again, and the Nasdaq 100 (^NDX) is outperforming the Dow by a 2-to-1 margin over the past week.

I could go on and on and continue to list stocks and other indicators that reference this alternative great rotation (versus the more popular one depicting money leaving bonds and going into stocks), but all that really matters is that you acknowledge the trend shift and its potential to carry stocks higher still.