With
U.S. stocks seeming to hit records by the day, perhaps its no surprise
that investors are piling into risk assets in a nearly unprecedented
way.
In the latest measure of optimism, TD Ameritrade’s Investor
Movement Index rose to 8.59 in December, its second straight monthly
record. The index measures the behavior of TD Ameritrade clients,
aggregating their positions and activity to measure how they are
positioned.
“Retail investors ended 2017 with exposure at
all-time highs. Our clients were net buyers during December, resulting
in one of the longest buying streaks in the history of the [index],” TD
Ameritrade wrote in a press release.
Courtesy TD Ameritrade
The index score is high,
relative to historic ranges, and it comes at a time when stocks have
been hitting repeated records. The S&P 500
SPX, +0.11%
after a gain of nearly 20% in
2017, has closed at records in the first four trading sessions of
2018—the first time it has accomplished such a fear since 1964. The Dow
Jones Industrial Average
DJIA, -0.07%
and the Nasdaq Composite Index
COMP, +0.26%
have also been hitting records on a regular basis. Read:Why Monday is a ‘big day for bulls’—and could suggest gains of nearly 20% in 2018
The
TD Ameritrade index is the latest signal of how enthusiastically people
of all stripes are jumping into equities. Last month, Morgan Stanley
wrote that institutional investors were “loading the boat on risk,” with
“long/short net and gross leverage as high as we have ever seen it.” See:Stock-market investors should ‘brace for a possible near-term melt-up: Jeremy Grantham
Margin
debt, which is viewed as a measure of speculation, has been at elevated
levels all year. According to the most recent data from NYSE, it hit
$580.95 billion at the end of November, its fifth record in a row, and
up 3.5% from October. Records aren’t rare—according to data from Bespoke
Investment Group, more than 23% of all monthly readings are records—but
debt has been creeping up basically all year. The 11 highest readings
on record all occurred in the 11 completed months of 2017. Read:Stock optimism swells as S&P 500 hits most overbought level in 22 years
Cash
balances for Charles Schwab clients reached their lowest level on
record in the third quarter, according to Morgan Stanley, which wrote
that retail investors “can’t stay away” from stocks. In December, the
AAII stock allocation index jumped to 72%,
its highest level since 2000, according to Dana Lyons of J. Lyons Fund
Management. Separately, bullish sentiment for U.S. stocks is currently at a seven-year high, while retail investors—according to a Deutsche Bank analysis of consumer sentiment data—view the current environment as “the best time ever to invest in the market.”
While
some analysts view such readings as ominous contrary indicators, J.J.
Kinahan, TD Ameritrade’s chief market strategist, said he wasn’t
troubled by the record in the Investor Movement Index.
“What
we’ve seen is that retail investors have gotten into the market more and
more, but in a measured fashion. In the past, retail is often either
all in or all out, and one of the nice things we’ve seen is that they’re
doing more of the right thing in terms of getting in and out,” he said.
“I don’t think the investors who are engaging regularly are doing so in
a dangerous fashion.”
Kinahan noted that TD Ameritrade clients were net buyers of Amazon
AMZN, +1.21%
General Electric
GE, -1.38%
Microsoft
MSFT, +0.05%
and Bank of America
BAC, -0.68%
in December. “While there are
always people who want to go all in, I don’t think these stocks
represent crazy speculative purchases,” he said.
Over all of 2017, the most popular net buys for TD Ameritrade clients were Nvidia
NVDA, +3.74%
Alibaba Group Holding
BABA, -0.19%
Amazon, GE, and AT&T
T, +0.28%
The five most popular stocks to sell were Apple
AAPL, -0.47%
Facebook
FB, +0.65%
Walt Disney Co.
DIS, -1.44%
Nike Inc.
NKE, +0.77%
and ConocoPhillips
COP, +0.81%
White House says the stock market is cheap right now
The White House's chief economic advisor, Gary Cohn, believes equities are cheap given recent Republican tax cuts.
"I
think the stock market — and some other pretty famous investors over
the last 24, 48 hours have agreed with us — that the stock market is not
expensive right now," Cohn said.
Secretary of the Treasury Steven Mnuchin
(L), National Economic Council Director Gary Cohn (C) and US Secretary
of Commerce Wilbur Ross wait for President Donald Trump to speak about
newly passed tax reform legislation during an event at the White House
December 20, 2017 in Washington, DC.
In an usual move for the executive branch, the White House's top economic advisor, Gary Cohn, said he believes stocks are cheap. "I think the stock market — and
some other pretty famous investors over the last 24, 48 hours have
agreed with us — that the stock market is not expensive right now," Cohn
said Friday on Bloomberg TV. The director of the White House Economic Council was likely referring to renowned investor David Tepper's comments to CNBC on Thursday where the hedge fund manager said the market is "almost as cheap as coming into last year." Tepper added that both
earnings projections as well as economic outlook are improved given
recent Republican success in passing tax legislation. The GOP plan cuts
the corporate tax rate to 21 percent. As President Donald Trump's chief economic advisor, Cohn
echoed Tepper's argument, saying that the tax stimulus will rev market
growth in the coming year, spelling upside for investors. "The stock market
is the reflection of what is going on in the global economies, what
companies are doing from an earnings perspective," said Cohn. "I'm not
sure people really understand the effect of tax reform in the stock
market and we have yet to see the capital expenditure that's going to
come through for five years of expensing."
Cohn's boss has not been shy
about touting the gains in the market over his tenure, but this is the
first time Cohn, the former No. 2 at Goldman Sachs, has been so blunt
about the stock market's actual valuation.
Courtesy Everett Collection
Courtesy TD Ameritrade
