Bull market spreading wealth, but nobody’s happy

Investors fear eight years of good times are about to end.

One day in September, investors with fading summer tans mingled with their brokers over a three-course lunch at Cipriani in lower Manhattan. Stocks were soaring and they swapped market tips and touted apps that allowed them to buy bitcoins on the golf course.

But the full stomachs and fat portfolios could not mask a sense of unease that pervaded the gathering: that the good times could suddenly end, derailed by nuclear war, political upheaval, a sudden rise in inflation or simply from stratospheric stocks crashing down to earth.

“Investors have never felt less secure, even though we are eight years into a bull market,” Mark Haefele, chief investment officer in the wealth management division at the investment bank UBS, told the crowd.

Rarely has a bull market been so unloved. Since March 2009, the Standard & Poor’s 500 stock index has nearly quadrupled in value. This year, not only is the index up 15 percent, but it also seems to have stopped going down at all: October was the 12th straight month that the S&P has logged a positive return, the first time that has happened since 1935.

Yet most conversations about the ever-rising stock market, brokers and investment advisers say, are dominated by the question of when it will all come to an end.

With the exception of President Donald Trump, of course. A week ago, in an interview on Air Force One, he once again took credit for the market’s most recent record close.

Generally, this far into a bull market, euphoria kicks in. In 1929, shoeshine boys were doling out stock tips. In 1999, people were quitting their jobs to trade technology stocks from their living rooms.

These days, each successive stock market record seems to spur more hand-wringing than cheerleading. There is anxiety about overhyped shares, about the possibility of central banks withdrawing their support for global economies, even about markets simply being worryingly quiescent, as evidenced by the historically low readings of the volatility index known as the VIX.

“The VIX is too low, valuations are too high, the recovery is too old and the Fed is tightening,” said Jim Paulsen, a veteran market strategist for the Leuthold Group in Minnesota. “For an old market dude like me, that is a scary list.”

For several years now, Paulsen has been pleading with his clients to embrace the bull market. He has touted the breadth of the surge, in which no single sector has dramatically outrun another on the way up. And he has argued that worldwide growth with little inflation represents an unusual buying opportunity.

When he meets with clients or presents his views at conferences, though, the vast majority of the questions he receives are about what will ultimately bring the market crashing down.

“No one ever asks me when the S&P is going to blow past 3,000,” he said of the benchmark stock index which ended trading Nov. 8 at 2,592.75.

In fact, many analysts say that this “wall of worry” is a positive sign. Investors may be piling into stocks and bonds, the thinking goes, but they are doing it with a measure of hesitation, which prevents some of the excesses that preceded previous market corrections.

That is not to say the market is without froth.

Since early 2009, the market capitalizations of Amazon and Apple have soared from $26 billion and $74 billion to $532 billion and $872 billion.

The surge in the price of bitcoins strikes many observers, including billionaire investor Warren Buffett, as a classic portent of a bubble ready to pop.

Nor are many skeptics comforted by the fact that a former logistics manager at a Target store has made millions of dollars betting that the VIX index, Wall Street’s closely watched fear gauge, will continue to fall.

These are not exactly the hallmarks of a restrained market.

To a large extent, the main drivers of the bull market have been sophisticated investors. Cash holdings by institutions and high-networth investors are at record low levels, which means they have been plowing money into the markets, according to numerous surveys.

Many retail investors, though, have remained on the sidelines — a sharp contrast to the activity that preceded the bursting of previous bubbles.

According to Charles Schwab, which oversees $3.1 trillion in retail investments, the cash portion of client accounts was 11.1 percent as of September. That is down from 13 percent at the end of last year, but it is still a sizable ratio, which suggests that investors are not dumping their entire savings into the stock market, at least for now.

Liz Ann Sonders, chief investment strategist for Schwab, said that until just recently, investors have been highly skeptical that the market’s bull run was justified. However, in the last month or so, she has noticed a change in sentiment at client meetings and investor events.

“Some investors are conceding it’s a bull market,” she said. “They are looking for approval to jump on the bandwagon.”

Still, she points out, retail investors have nowhere near the commitment to stocks that characterized past stock market booms.

Richard Bernstein, a former equity strategist at Merrill Lynch who now runs his own investment firm, has been bullish on stocks since 2009. He said that by this point of a strong equity run, buying stocks traditionally becomes widely accepted by all investor classes — the consequence of one outstanding stock market year following another. Nobody wants to hear their neighbors boasting about their sizzling portfolios without having their own good news to share.

That is not the case this time. According to Bernstein, Wall Street experts on average advise investors to put 55 percent of their portfolios into stocks, as opposed to other assets such as bonds. That is considerably more conservative than the traditional recommendation that investors have up to 65 percent in stocks.

And many pension funds, instead of investing in the stock market, are putting money into private-equity investments, even though they incur hefty fees and their money generally gets locked up for 10 years.

“This is crazy,” Bernstein said. “So when people say there is euphoria in the market and people are getting carried away, I say, ‘Who are we talking about?’”

Late last month, at an investor panel sponsored by the fund company Eaton Vance, Bernstein cited the rising South Korean stock market in arguing that fears of nuclear war were overblown and should not be used as an excuse for investors to avoid putting their money into stocks.

As usual, the pushback was quick in coming.

What happens if war breaks out in the Korean Peninsula, a member of the audience asked him. Wasn’t he ignoring that possibility?

Bernstein argued that investors should care about the economic and corporate fundamentals — not the remote chance that a calamity will strike.

“You cannot invest successfully,” he said, “when you are crouched under your desk in a fetal position.”