The consistent gains have encouraged individual investors to buy stocks. About $190 billion has been added to equity mutual funds and exchange-traded funds since the start of 2013, data compiled by the Investment Company Institute and Bloomberg show. That’s a reversal from the five years through 2012, when $300 billion was withdrawn.
Revealing Strength
“Willingness to buy on a dip implies confidence,” Stacey Nutt, chief investment officer at ClariVest Asset Management LLC in San Diego, California, said in an interview July 22. His firm oversees about $4 billion. “It is a sign of economic strength revealing itself in the market.”
For other financial professionals, the unbroken advance is stirring anxiety. The market is on the verge of a bubble or is already in one, according to three in five people surveyed in a Bloomberg Global Poll of investors, analysts and traders conducted July 15-16.
The S&P 500 is about 25 percent above its peak in 2007 and trades at 18 times reported earnings, near the highest valuation since 2010, data compiled by Bloomberg show.
“We are in a bubble,” Faber, managing director of Hong Kong-based Marc Faber Ltd., said in a July 21 interview with Alix Steel on Bloomberg TV. “In a bubble, people are optimistic, there is euphoria about prices going higher and so forth. And that may be possible. The question is, ‘Are stocks good value?’ and I don’t think that U.S. stocks are.”
Bears Penalized
Some of the most sophisticated investors are being penalized by wagers that equities will fall. The HFRX Equity Hedge Index is down 0.1 percent in July, headed for its fifth drop during the past seven months. The Global X Guru Index ETF, which tries to replicate hedge-fund holdings, is up 3 percent in 2014, compared with a 7 percent gain for the S&P 500.
The S&P 500 has gone without a 10 percent loss for 33 months, the third-longest stretch since 1990. On average, corrections have occurred every 18 months since 1946, according to a study by Sam Stovall, chief equity strategist at S&P Capital IQ.
“It’s a better environment for long investors,” Dan Miller, director of equities at GW&K Investment Management in Boston, said by phone July 23. The firm oversees more than $20 billion. “Every market drop is going to be met with a new list of buyers coming back to stocks, and feeling that they can’t afford to miss the next leg of the bull market.”