And one strategist says this week’s investor nervousness could actually add fuel to a market rally.
“I don’t really sense much euphoria with the market making a new all-time-high yesterday,” SunTrust Advisory Chief Market Strategist Keith Lerner said on yFI AM (video above). “And I think it’s a positive to extend this thing a little bit longer.”
‘Hedge funders are under-exposed’
“Over the last 12 months, we’ve seen the greatest outflow of ETF’s and mutual funds in at least 20 years,” Lerner explains. “And this is coming where the market is at a record high. Normally you see these kind of outflows after a big decline when people panic and that marks a bottom. So it’s a lot different from history, but if you see the market move up more, you may see some of these folks get back in.”
Lerner says his overall market view is “Don’t Fear Strength” and explains why investor sentiment is unusually depressed.
“We’re out with all time highs in the S&P, and a lot of investors in our work are still underinvested or underexposed in the market. So I think that’s part of what’s buffering the downside is that we’ve already seen a huge amount of de-risking by individual investors. Hedge funders are under-exposed, so I think net-in-net from a contrarian’s perspective, that’s a positive.”
‘Some of these things are simmering down a little bit’
The markets continue to face major uncertainties, including geopolitical tensions between the U.S. and Iran, the ongoing trade war with China, and dovish rhetoric from global central-bank policy makers.
So what should investors really worry about?
“A big catalyst is some of these things are simmering down a little bit,” Lerner says. “Even next week when we have the G20, I don’t think we need a trade deal but some progress that things are moving forward, I think, is good enough for the market.”
He added that “I don’t think you need a big catalyst. I think you just need things to not get much worse relative to depressed expectations that we are seeing today from investors.”
Earnings season expectations
In a few weeks, market watchers will be eagerly awaiting another earnings season and many are concerned about impact of tariffs. Lerner gives his take.
“I think many analysts are having a difficult time quantifying the extent of tariffs,” Lerner says. “I think the market can handle some downward revisions in the earnings estimates. However if the next round of tariffs go through, I think would be a big issue for the market.”