They have flocked to stock funds at a pace rarely seen since 2008, but some warn that shares look expensive historically
4 min
A roaring market rally since the U.S. presidential election has driven up the price of everything from shares of technology and manufacturing giants to cryptocurrencies. Many investors are betting it has room to run.
Investors have stampeded into funds tracking U.S. stocks and picked up trades that would profit if the rally that recently sent the S&P 500 above 6000 for the first time reaches new heights.
U.S. equity exchange-traded and mutual funds drew nearly $56 billion in the week ended Wednesday, the second-largest weekly haul in records going back to 2008, according to EPFR data. Such funds have drawn inflows for seven consecutive months, the longest streak since 2021, when a dizzying market melt-up sent stocks to repeated records.
Driving the optimism? Many investors said they expect lower taxes and fewer regulations during Donald Trump ’s second term as president.
Dominic Rizzo, a technology portfolio manager at T. Rowe Price , said tariffs could boost U.S. manufacturing, driving a surge in domestic spending and investment. Other investors are simply breathing a sigh of relief that the election has passed.
The share of investors surveyed by the American Association of Individual Investors who said they were bullish jumped to 49.8% this past week, while the share of those reporting a neutral sentiment dropped to the lowest level since 2022. About 40% of those surveyed said the U.S. election made them more optimistic about the market.
“Animal spirits are alive and well right now,” Rizzo said.
Rizzo oversees shares of Nvidia and other tech giants. After a big run-up, he is still optimistic about the group ahead of Nvidia’s earnings report Wednesday. Investors are also fixated on the presidential transition and how it might shape the market’s winners and losers.
Some market watchers caution that investors might be too quick to latch on to policies that could boost markets, while ignoring plans that might stir inflation and market volatility.
Stocks wobbled at the end of the past week, and bitcoin retreated. Trump’s appointment of the vaccine skeptic Robert F. Kennedy Jr. as health and human services secretary pressured several stocks including Moderna and Pfizer . Shares of Tesla , which soared after the election and pushed the company’s market cap back above $1 trillion, have stumbled in recent sessions. Shares of Trump Media & Technology Group fell 12% for the week.
Still, the S&P 500 index and the Nasdaq Composite closed Friday within about 3.2% of their respective record highs. With just weeks left in 2024, the S&P 500 is on track to jump more than 20% for the year, the second consecutive year of gains of that magnitude. It is a back-to-back advance that has been seen only three times over the past century, according to Deutsche Bank.
Joe Johnson, 37, said he has waded into hot stocks including Nvidia, Tesla and a crypto play, MicroStrategy . His portfolio has swelled this year, and he is feeling so good about the market that he is thinking about pouring his cash pile into stocks. He is eyeing such industrial giants as Caterpillar and Deere , which he believes will benefit from a strong economy.
“I am bullish on the market,” Johnson said. “The euphoria everyone is feeling is warranted.”
Johnson said he is excited about Trump’s presidency and expects his policies to benefit his small business in Maryland, which sells boat-maintenance kits, engine parts and protective covers.
Many investors have piled into segments of the market such as small companies, which are especially sensitive to the economy.
The Russell 2000 has risen almost 2% since the election, and one of the largest exchange-traded funds tied to the index attracted $3.9 billion in inflows in a single session this month, the most since June 2007. Money managers, meanwhile, have increased positions that would pay out if the rally continued, driving net bullish bets in the futures market to the highest level in more than four years.
Some of the riskiest corners of financial markets are thriving too. Three of the top five days for trading in call options, trades that give the right to buy shares, have occurred this month, according to options records going back to 1973. That has pushed up the cost of bullish trades that would profit if stocks soared.
A frenzy of trading in cryptocurrencies sent bitcoin prices above $90,000 and unleashed a historic rush into crypto funds. Dogecoin, a speculative coin backed by nothing, shot up after Trump revealed plans to create a government-efficiency department called DOGE, to be co-led by Elon Musk , a dogecoin evangelist. Its $55 billion market cap now tops that of Ford Motor.
Trading in the over-the-counter market, which includes riskier securities such as penny stocks, has surged 27% in November from the same time last year, according to OTC Markets Group.
Some said stocks are looking expensive after their recent run. The S&P 500 recently traded at 22 times its expected earnings over the next 12 months, above its five-year average of roughly 20. A Bank of America strategist, Savita Subramanian, called market sentiment and positioning “dangerously bullish” in a note to clients Friday.
Bond investors have been sending a different signal, driving the benchmark 10-year Treasury yield to 4.426% on Friday, up from 4.072% around a month ago. They are banking on bigger deficits and higher inflation in the years ahead. Federal Reserve Chair Jerome Powell indicated Thursday that the central bank will take its time to trim interest rates, pressuring bonds and stocks.
One measure closely tracked by investors, the equity risk premium —or the gap between the S&P 500’s earnings yield and that of 10-year Treasurys—shrank close to zero, the lowest level since 2002, according to Dow Jones Market Data. That means the reward for owning stocks over bonds is dwindling.
“The market is awfully expensive to have a melt-up,” said Rob Arnott , the founder and chairman of Research Affiliates.
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The latest round of policy boosts comes as stocks start the year on a soft note.
3 min
China’s securities regulator is ramping up support for the country’s embattled equities markets, announcing measures to funnel capital into Chinese stocks.
The aim: to draw in more medium to long-term investment from major funds and insurers and steady the equities market.
The latest round of policy boosts comes as Chinese stocks start the year on a soft note, with investors reluctant to add exposure to the market amid lingering economic woes at home and worries about potential tariffs by U.S. President Trump. Sharply higher tariffs on Chinese exports would threaten what has been one of the sole bright spots for the economy over the past year.
Thursday’s announcement builds on a raft of support from regulators and the central bank, as officials vow to get the economy back on track and markets humming again.
State-owned insurers and mutual funds are expected to play a pivotal role in the process of stabilizing the stock market, financial regulators led by the China Securities Regulatory Commission and the Ministry of Finance said at a press briefing.
Insurers will be encouraged to invest 30% of their annual premiums earning from new policies into China’s A-shares market, said Xiao Yuanqi, vice minister at the National Financial Regulatory Administration.
At least 100 billion yuan, equivalent to $13.75 billion, of insurance funds will be invested in stocks in a pilot program in the first six months of the year, the regulators said. Half of that amount is due to be approved before the Lunar New Year holiday starting next week.
China’s central bank chimed in with some support for the stock market too, saying at the press conference that it will continue to lower requirements for companies to get loans for stock buybacks. It will also increase the scale of liquidity tools to support stock buyback “at the proper time.”
That comes after People’s Bank of China in October announced a program aiming to inject around 800 billion yuan into the stock market, including a relending program for financial firms to borrow from the PBOC to acquire shares.
Thursday’s news helped buoy benchmark indexes in mainland China, with insurance stocks leading the gains. The Shanghai Composite Index was up 1.0% at the midday break, extending opening gains. Among insurers, Ping An Insurance advanced 3.1% and China Pacific Insurance added 3.0%.
Kai Wang, Asia equity market strategist at Morningstar, thinks the latest moves could encourage investment in some of China’s bigger listed companies.
“Funds could end up increasing positions towards less volatile, larger domestic companies. This could end up benefiting some of the large-cap names we cover such as [Kweichow] Moutai or high-dividend stocks,” Wang said.
Shares in Moutai, China’s most valuable liquor brand, were last trading flat.
The moves build on past efforts to inject more liquidity into the market and encourage investment flows.
Earlier this month, the country’s securities regulator said it will work with PBOC to enhance the effectiveness of monetary policy tools and strengthen market-stabilization mechanisms. That followed a slew of other measures introduced last year, including the relaxation of investment restrictions to draw in more foreign participation in the A-share market.
So far, the measures have had some positive effects on equities, but analysts say more stimulus is needed to revive investor confidence in the economy.
Prior enthusiasm for support measures has hardly been enduring, with confidence easily shaken by weak economic data or disappointment over a lack of details on stimulus pledges. It remains to be seen how long the latest market cheer will last.
Mainland markets will be closed for the Lunar New Year holiday from Jan. 28 to Feb. 4.
