Is The Market Overdone?

Since the election, the stock market is on a tear. The Trump rally is discounting an awful lot of good things happening. Is the market overdone?

Bull and bear , symbolic beasts of market trend

According to Zerohedge, TrimTabs thinks it is.

TrimTabs Issues Warning After A Record $98 Billion Flood Equity ETF Since The Election

Having recently (before the election) found that stock buybacks have tumbled to the lowest level in 5 years, coupled with the lowest amount of insider buying since 2011, this morning TrimTabs Investment Research reported what regular readers already know, namely that U.S. equity exchange-traded funds received a record $97.6 billion from Tuesday, November 8 through Thursday, December 15, promptly TrimTabs to ask if “investors are all-in on US stocks?”

“The stampede into U.S. equity ETFs since the election has been nothing short of breathtaking,” said David Santschi, chief executive officer at TrimTabs.“The inflow since Election Day is equal to one and a half times the inflow of $61.5 billion in all of last year.One has to wonder who’s left to buy.”

Well, there is also the BOJ, SNB, the GPIF and a variety of other official and unofficial institutions who can print money at will to adjust their cost basis…

In a research note, TrimTabs points out that the inflow into U.S. equity ETFs since Election Day is equal to 6.3% of these funds’ assets.December’s inflow has already reached $43.4 billion, putting this month’s inflow on track to surpass the record monthly inflow of $50.7 billion set in November.

TrimTabs also noted that buying has been persistently heavy since the election.  U.S. equity ETFs have had outflows on only three trading days, and inflows swelled to $27.8 billion on the five days ended Thursday, December 15, the highest weekly inflow in four weeks.

This, however, is far from a bullish sign according to TrimTabs, which issued the following warning as a result of the “breathtaking” inflows: “ETF flows tend to be a good contrary indicator when they become extreme, so the buying frenzy doesn’t bode well for U.S. equities,” said Santschi.“The market also could get a nasty jolt in January, when investors who’ve been postponing stock sales this year in anticipation of lower tax rates next year start to sell.”

The euphoria that has gripped markets since Trump’s election seems excessive. A good argument could have been made that markets were overvalued prior to the election. If that were true, then this strong performance only adds to the over valuation. Will his policies be good enough and fast enough to support these levels? Will the malinvestment that has developed over a couple of decades surface and kill the optimism?

Being long has been good. Whether it will continue to be in the immediate future is a question that no one can answer with certainty.