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Stock market investors with more than $1 million have reached a bullish peak

By one closely watched measure of valuation, Alan Greenspan’s irrational exuberance warning should be keeping investors near the sell button. But as the Dow Jones Industrial Average passes the 23,500 mark, there is no fear among investors with a million dollars or more in the market.

New survey results show they are as confident in the U.S. economy and stocks as they have been at any point this year, with 74 percent of million-dollar market accounts bullish on the fourth quarter, up from 61 percent who were bullish in the prior quarter. Even as some readings show a wide gap between the bulls and bears — the biggest gap between market optimists and pessimists since Black Monday — the bullish mood is most pronounced among older million-dollar investors, who have been around for more than a few ups and downs in Dows and portfolio values. Those 55 or older are the significantly more bullish than younger investors.

“Fundamentals matter again and are becoming front and center for the economy and equities,” said Mike Loewengart, vice president of investment strategy at E-Trade Financial.

The latest GDP reading of 3 percent was surprisingly strong after the multiple hurricanes that hit the United States, while consumer confidence has hit a 17-year high, according to the Conference Board. Exchange-traded fund flows to equity portfolios were more than $43 billion in October, the highest level since the post-election euphoria of November 2016.

A baseline bullishness has been in place throughout 2017. And the latest GDP number was released after the survey of million-dollar self-directed brokerage investors, conducted by E-Trade and provided exclusively to CNBC. But Loewengart said it is confirmation of the trend line with broader economic statistics and “the slow burn” of the U.S. economy. Corporate earnings have been solid at the same time, he said.

The percentage of investors with million-dollar brokerage accounts who expect the market to end the fourth quarter rising was in the 50s through the first three quarters of the year, before jumping to 71 percent in the fourth quarter. Those who think the market will rise by 10 percent hit double-digits for the first time this year (17 percent of million-dollar account holders). The percentage of these investors who expect the market to end the quarter down has declined steadily, from 22 percent in Q1 to 9 percent in the latest survey.

According to Thomson Reuters, of the 306 companies in the S&P 500 that have reported earnings to date for the third quarter, 72.9 percent have been above analyst expectations. That’s much higher than the long-term average but just slightly above the four-quarter average of 72 percent. A little more than 66 percent of S&P 500 companies have reported revenue above analyst expectations. That’s above the prior four-quarter average of 56 percent.

“We haven’t seen this happen over the past eight years,” the E-Trade official said, referring to bullishness based on a combination of strong earnings and strong economic fundamentals. “When I think about what’s driving the market, it has been policy-driven — ‘The Fed will be accommodative and will continue its cycle.'”

For investors worried that the market is pinning too much on tax-reform prospects — especially as the GOP announced it had to delay by at least one day the release of its plan, which had been scheduled for Wednesday — sectors bets being placed by those with $1 million or more in brokerage accounts don’t show an overreliance on any single factor.

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The sectors that these investors cited as having the most potential this quarter were more evenly cited. And these investors are dipping into some dogs of the market this year, such as telecom — 27 percent of million-dollar accounts said telecom was among the sectors with the most potential in the fourth quarter, up from 18 percent in Q3.

“Q3 was more heavily skewed,” Loewengart said. “It’s much more balanced now.”

The big bet on the financials sector relative to other parts of the economy also narrowed based on the survey results.

“Tax reform is an element, but it’s something investors have been expecting since last November,” Loewengart said. “It’s still the case that investors are expecting meaningful tax reform to occur, and if we get an idea that it is in jeopardy, I think we will see volatility,” he said.

Morgan Stanley released an analysis this week of how tax-reform failure would hit the markets, and its view is that even failure would not be a disaster. Loewengart said if tax reform is watered down — some reports indicate that corporate rate reductions could be phased in over time rather than immediately heading to 20 percent — or even fail to gain enough votes to pass, it’s already been factored into expectations.

Source: Investment Cnbc
Stock market investors with more than million have reached a bullish peak

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