The fear is gone on Wall Street.
Apparently, there is nothing to worry about; stocks will no longer go down, and the lion will now sleep with the lamb.
I jest, of course, but if you read the financial press these days, or if you listen to the plethora of pumped-up pundits extolling the virtue of equities, you might come away with the idea that all is bliss in stock land. A case in point is a recent Wall Street Journal article titled, “Investors Finally Shed Fears.”
In the piece, we find out, “Individual investors are doing more stock trading. Mutual-fund companies are seeing money being put to work in both stocks and bonds. Advisers say they are hearing from investors who had been hunkered down for years but now are feeling more comfortable that another big meltdown isn’t lurking around the corner.”
The article does go on to point out that greed hasn’t completely replaced fear as Wall Street’s governing emotion, but quickly thereafter it goes into a litany of metrics confirming the great Wall Street fear kill.
Some of those metrics include the seven-week winning streak for the S&P 500 index, which is up 6.6% so far in this young 2013. Then there’s the Dow, which is up 6.7% year to date, and now trades above 14,000 and near its highest level ever.
Then there is the lack of fear, as measured by the “fear index” itself, the CBOE Volatility Index, which is better known as the VIX. The measure of volatility on S&P 500 options has languished below the 15 mark for all of 2013, and the following chart of the VIX shows the volatility index at its lowest point in years. The latest stint below 15 is the longest such stretch under this technically and psychologically significant level since early 2007.
Indeed, judging by these metrics, fear has been swatted down and tossed in the trash by investors, and that means more buying to come — until, of course, it doesn’t.
In recent weeks, I’ve said that the beginning of 2013 reminds me of 2008; when everyone was über bullish on stocks, and nobody thought the major averages would ever drop significantly. Well, we know that notion was faulty, and we know that anyone saying stocks can’t go down again is living a pipedream, too.
I think now, more than ever, investors need to cultivate a strong fear instinct, because it is precisely when there is no fear in the markets that things tend to drop very, very fast. Will there be more buying in 2013? Quite possibly, but we also could witness a serious sell-off if we see a continuation of the downbeat economic data lurking behind the bullish curtain.
Poor revenues from retail giant WalMart (WMT), higher gasoline prices, sluggish growth in Europe, and weak U.S. gross domestic product (GDP) and employment growth are just some of the reasons that could put fear back on Wall Street’s front burner and heat things up significantly for all of those fearless bulls rushing back into stocks.
To find out when it’s time to get back into equities once the current greed and fear cycle tempers, check out my Successful Investing investment newsletter today.
On Strength and Repair
“The world breaks everyone, and afterward, some are strong at the broken places.”
If you’re human, you’re going to experience sorrow, sadness and heartbreak. But it’s how you emerge from these that determine your existence. Often, coming out stronger in the broken places is the difference between being happy, and living a life of pain.
To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.
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