The Allure of Easy (Market) Money

I flew to Dallas last week for a family event. And on the flight back, I received a real education in the dangerously excessive bullishness of today's market.

I looked over at my seatmate, a man in his late 30s - and he had his phone open, scrolling through various price charts. As kindred fans of the stock market, we fell into a pleasant conversation that lasted all the way back to Florida.

He was a smart guy. A street-wise automotive technician who (like me) taught himself how to trade.

But something he said perked my ears up. He told me that the stock market goes up 1o-12% a year and, "if you just put your money to work and let it sit there, you'll get rich. It's pretty much guaranteed," he told me.

Just hook yourself to the stock market train, he said, and go along for the ride.

It's just my opinion. But after 30 years of trading through stock market highs and lows...I think that's dangerously complacent attitude.

Sure, the market "giveth." And historically, it does so on average by roughly 10% a year. But the part my airplane friend forgot about (or is too young to realize), is that the market also "taketh away" - a lot, and usually when we least expect.

As I started noting two weeks ago, I believe this is one of those times. The markers are there for us to see, if we take a closer look.

For example, I pay attention to sentiment surveys. But it's more significant to track what market-newsletter writers are telling their subscribers, rather than ordinary investors. And according a service called the Hulbert Sentiment Newsletter Indices, market newsletter publishers are sending a message that hasn't been at these bullish extremes since the 2000 dot-com bubble turned into a bust:

And despite the "all-time high" headlines, it's only a handful of trillion-dollar tech stocks (which account for more than 50% of the S&P's market capitalization these days) driving the market. Most other stocks continue to fade lower:

If it weren't for the chart above, I'd be uncomplainingly bullish. I keep hoping that I'll be wrong and perhaps we'll see a broadening-out of the current rally, portending a healthier market.

But the lack of participation by the rest of the S&P 500 stocks is a warning signal that the rally is dangerously lopsided.

In fact, I'd argue - as I have in recent weeks - that the Nasdaq is in thrall to an AI-investing bubble, led by Nvidia (NVDA). From a charting perspective, today's bubble looks uncomfortably similar to the dot-com bubble in the first 3 months of the year 2000:

I'll be the first to admit that charting "analogs" like the one above...don't always work out. Just because two charts look similar is not the same as actual proof.

But then again, that's the dangerous thing about bubbles. They don't come along very often. And when they choose to pop, most of us have trouble adjusting to the market's new reality...until it's too late.

Jeff Yastine