(Marketwatch) Investors may be toughened up by a week that has brought fresh jitters on the COVID-19 front, while the long holiday weekend beckons. But they really do need to take stock of rising risks, says a team at Jefferies led by their global equity strategist Sean Darby.
“In an almost exact replay of the end of last year, our risk indicators have begun to flash euphoria with sentiment just a tad too bullish,” Darby told clients in a note on Wednesday. “Aside from a crowded short position on the dollar, there are a few other catalysts for a correction in share prices.”
Such as company earnings that continue to be revised higher, negative real interest rates and “perky” inflation expectations. Another big one is the Georgia runoff elections in January that will decide which party controls the Senate, he said.
As for those “euphoria” signals, the Darby-led team points to Investors Intelligence surveys that have shown a persistently high prevalence of bulls — above 60% for four weeks. Above that level can indicate excessive bullishness.
Also, there are the most number of S&P 500 stocks trading above their 200-day moving average since 2013, a sharp move higher in Jefferies’s own sentiment index, and year-to-day highs for its global risk-appetite index.
“Moreover, the spread between inflows into risky and safe assets has been in positive territory for one of the longest periods since 2017,” said the Darby team.
But, hey, maybe it’s nothing.
