On the back of the Dow's new all-time nominal high yesterday, stocks look like they may push on to a new high today, with the S&P 500 (SNPINDEX:^GSPC) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) up % and %, respectively, as of a.m. EST.
Follow-up: Junk bonds
A few weeks ago, I highlighted the fact that some savvy investors had turned bearish on junk bonds. That attitude appears to be spreading, as the Financial Times reported yesterday that the short interest in the SPDR Barclays High Yield Bond ETF (NYSEMKT:JNK) and the iShares iBoxx High Yield Corporate Bond ETF (NYSEMKT:HYG) has reached its highest level since October 2007 (the same month stocks peaked). Respectively, the ETFs have 8% and 9% of their outstanding shares on loan to short-sellers.
Getting back in the game
Greeting a new high in the Dow yesterday, the Financial Times announced: "Dow milestone may lure retail investors." I'm not so sure -- not to any great extent, anyway. Just look at the results of the poll conducted on the front page of Yahoo! Finance -- the individual investor's first destination -- asking:
The Dow smashed its record intraday high of 14,198.1 Tuesday. Are you getting back in the game?
Given four possible answers, a full 44% (of more than 70,000 respondents) chose "I'm still waiting to get back in."
As I wrote yesterday, the Dow's previous nominal high, set in October 2007, was the last gasp of an expiring bull market. A credit and housing bubble had fueled a frenzied acquisition binge by LBO groups and had turned ordinary homes into a vehicle for mass speculation and unfunded consumption. Today, despite pockets of obvious overvaluation in asset markets (see the "follow-up" section above), the mood among individual investors does not spell frenzy or euphoria. Bravado is out, prudence is in -- excessively so, perhaps.
As such, and despite my concern regarding the broad market's valuation -- one of the best indicators of long-term value, the P/E10, suggests stocks are overvalued -- I think it's quite conceivable that this bull market will continue if investor attitudes toward stocks normalize. (Let me be clear: I have no high-value insight regarding where the market will be tomorrow, next week, three months from now, or in a year's time -- which puts me on equal footing with everyone else.) What would this take? A more rational approach to the federal budget and a significant improvement in employment would be a good start.