No longer is this the most-hated bull market in history, though you might not know it from the nasty week just ended.
Even the worst week in two years for the Dow Jones industrial average – down by 4.2 per cent – put only the scantest of dents in the bull market, into which individual investors are increasingly putting their faith and their money.
From indicators of soaring investor sentiment to the indexing frenzy, to discount brokerages struggling to meet demand from new investors, to unrestrained buying in cannabis stocks and cryptocurrencies, the stock market seems to finally be winning over many of its most stubborn hold-outs, who are coming to the realization they've been missing out on one of the best bull runs ever.
History clearly shows that investor euphoria can be a bull market's undoing. But unlike bubbles of yore, this latest leg in the stock-market uptrend has genuine foundational support.
Robust growth in corporate earnings, the awakening of the global economy, U.S. fiscal stimulus and still-depressed interest rates are combining to form powerful stock-market fuel.
Yes, investors have been optimistic, verging on ecstatic. But they are right to be, said Craig Fehr, a markets strategist at Edward Jones.
"It's very difficult to find periods of sustained decline in the market when profits are going up and the economy is growing. That's the hook investors should hang their hats on," Mr. Fehr said.
By Mr. Fehr's estimation, the end is not yet upon us.
This past week saw the kind of sell-off that the market's newest investors may not even recognize.
The most obvious catalyst for the sell-off was a spike in U.S. long-term bond yields, which gathered momentum after the January jobs report posted the country's best wage growth since 2009. The market's issue with that kind of data is that it could portend the long-awaited return of inflation.
Upward pressure on prices, in turn, might force the U.S. Federal Reserve to accelerate its withdrawal of stimulus and perhaps raise interest rates more than expected. And sinces rock-bottom rates have formed one of the bull market's pillars in the post-financial-crisis era, equity investors have come to fear and loathe signs of rates on the upswing.
But assuming stocks have not suddenly tipped into the next great bear market, this latest dip might be considered a sign of health, Mr. Fehr said.
"A week like this one is important. To see the market react to the downside on what is relatively benign news, that tells me we haven't reached a melt-up phase, that we haven't become disconnected from reality," he said.
The general level of investor skepticism that first earned the bull market the moniker of "most hated," has not completely vanished, he said.
Having suffered through two wealth-destroying market meltdowns of at least 50 per cent, first with the dot-com bust, then with the global financial crisis, many investors were disinclined to put their faith back into equities.
As a result, as the bull market pumped out returns since bottoming out in 2009, cash holdings have remained high and sentiment indicators have stayed low. That has actually helped keep the market from getting overheated, while keeping market returns on an unusually steady trajectory.
The S&P 500 index, for example, has now gone more than 400 days without a 5-per-cent pullback, setting a record for stability. Only over the past year has risk appetite among individual investors finally begun to swell to the proportions generally expected of such a long upswing.
A survey by the U.S. Conference Board found the highest number of respondents expecting the stock market to rise over the next year since early 2000. A recent Investors Intelligence survey suggested the widest spread between market bulls and bears since 1987. And other data point to rising inflows into equity funds, dwindling cash holdings, and greed starting to crowd out fear.
Meanwhile, several online brokerages in the United States and Canada catering primarily to retail investors experienced recent surges in demand that exceeded capacity. New clients diving into cannabis and cryptocurrency-related equities were behind much of the trading, TD Ameritrade chief executive Tim Hockey said in a conference call last week.
"There is no doubt in my mind that sentiment has hit bullish extremes," David Rosenberg, chief economist at Gluskin Sheff + Associates, said in a recent note.
Of particular concern is that the spike in retail engagement with stocks is occurring after a nine-year bull run.
"When you get that kind of rush into equities in a late cycle with high valuations, that's when our radar starts to go off," said Jason Mann, chief investment officer of Edgehill Partners.
But what potentially sets the current market apart from past bubbles is the state of both the global economy and corporate earnings. The broadest global expansion since the financial crisis is now taking hold, while global earnings are expected to rise by 14 per cent this year, according to Citigroup.
By contrast, bear markets tend to occur when excessive investor optimism coincides with deteriorating fundamentals, said Richard Bernstein, chief executive of Richard Bernstein Advisors in New York.
"There is a period in every cycle when investors are bullish because fundamentals are demonstrably improving," Mr. Bernstein said by e-mail. "I don't understand why it's inconceivable that might describe the current environment."