Different signals are piling up, pointing to a market that is ahead of itself, and perhaps in the last innings of this cycle: (1) concentration on a handful of names, (2) historical low levels of cash in mutual fund portfolios, (3)very high levels of insider selling (4) corporate bankruptcies raising rapidly, (5) relatively low levels of credit spreads and (6) as you can see below, short sellers are starting to give up on this market, tired of waiting for the market to correct, despite being expensive. Also (7) the retail investor, usually the last one to join the party, is all-in, with high expectations for the market and high allocations to stocks. And finally, (8) passive ETFs have seen increíble inflows, which indicates investors think it is easy to make money in this market and that it’s not worth the effort to find the winners. We’re watching an accident waiting to happen, we just don’t know when will it happen.
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