August may be considered the one month where investors can sit back and relax, maybe even under a beach umbrella, but MoneyShow's Howard R. Gold thinks that doesn't mean to stop being on the lookout for what might be right around the corner.
It's August and the dog days of summer are officially here.
That means money managers, traders, and hedge fund operators have decamped for the beach, leaving Wall Street looking like an empty canyon. Even the financial media have dialed things back a bit as the news cupboard is pretty bare.
Earnings season is winding down, President Obama has delayed his choice of a new Federal Reserve chairman or woman until the fall, and Congress is headed for recess. The Federal Open Market Committee, which announced Wednesday it would maintain current policy, won't meet again until mid-September.
So, barring two jobs reports and the sudden appearance of black swans, there's almost nothing important investors need to worry about over the next few weeks—except their own complacency. With several indexes at or near all-time highs and with trading volume deeply depressed, investors are taking things too much in stride.
Bullish sentiment is rampant, the CBOE Volatility index (VIX) is bumping along its recent lows, and price/earnings ratios for stocks are entering high, if not nosebleed, altitudes. That makes things ripe for a decent correction after a surprisingly strong summer rally.
On Thursday morning, the Dow Jones Industrial Average hit a new record, and so did the Standard & Poor's 500 index, which topped 1700 for the first time. The small-cap Russell 2000 also is just below its recent record high.
But investors appear to be taking it for granted. In July, $17.5 billion flowed into US equity mutual funds and ETFs in one week, the most in any week since June 2008. Meanwhile, investors pulled $75 billion from bond funds over a six-week period, reversing a five-year-long trend. What were they waiting for?
Read Howard's piece on What to do as Bonds Crack on MoneyShow.com.And recent polls of institutional and individual investors show great confidence, even overconfidence, the market will continue to move higher.
Investors Intelligence recently reported that 52% of the newsletter writers it polls were bullish and less than 20% were bearish. That was the highest percentage of bulls and the lowest number of bears since May.
Two respected surveys of professional investors—Consensus and Market Vane—indicated bullish sentiment of 67% last week; it's been rising for several weeks.
Next: Individual investors are too bullish
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