To The Moon

Skeptics, cranks, disbelievers. The stock market is overrun with them. It may be one of the reasons equities keep rising.

Rarely has the consensus been more uniformly bearish than it is now. Investors are sitting with the lowest allocation to US stocks in almost two decades, have kept cash holdings high for the longest stretch since the dot-com crash and are embracing recession trades more than any time since 2020. And why not? The banking system is stressed, the Federal Reserve pushed forward with another interest-rates increase while recession warnings continued to flare in bonds.

But when everyone’s leaning one way, big swings are apt to break out in the other, as the consensus is strained and people give in. Small gains can snowball when the worry is missing out on the next big rally. Lately the concern has been warranted. The S&P 500 just finished the first three months of the year up 7%, rounding out back-to-back quarterly gains. That hasn’t happened during any bear market in the past four decades.

“Zero bulls out there,” wrote Brian Garrett, a managing director at Goldman Sachs Group Inc., in a note this week citing a recent client survey showing 85% of the respondents were bearish or neutral. “Part of me wonders if the trigger finger is starting to itch.”

The pain of being a bear was evident in the performance of most-hated stocks, which as a group rose twice as much as the market on Friday, handing losses to short sellers. An index tracking them climbed for the first time in seven quarters.