Global stocks continued their upward march, ending the week at healthy gains. They paused only briefly Wednesday, which so far has been the only down day in 2018. Much like last year, foreign stocks maintain the lead over domestic, but both are up 4% or more for the first two weeks of the year. Commodities jumped on rebounding oil prices, with gold also ending in positive territory. Bonds moved slightly lower as Treasury yields increased.

Weekly Returns:

S&P 500: 2,786 (+1.6)
FTSE All-World ex-US: (+1.3%)
US 10 Year Treasury Yield: 2.55% (+0.07%)
Gold: $1,339 (+1.3%)
EUR/USD: $1.220 (+1.4%)

Major Events:

• Monday – GoPro announced it will cut 20% of its workforce and exit the drone market, with the CEO stating they would consider a sale to a larger company.
• Tuesday – Eastman Kodak announced it will launch an initial coin offering called KodakCoin, sending shares sharply higher for the day.
• Wednesday – Government officials in China recommended the country slow or halt its purchase of US Treasuries, although no action has been taken at this point.
• Thursday – Dropbox filed to go public, three years after the company received a $10 billion private valuation.
• Thursday – South Korea announced it is preparing a bill to ban trading of cryptocurrencies, sending Bitcoin prices down 13.7% for the day.
• Friday – The Trump administration extended sanctions relief to Iran for another few months as it attempts to modify the 2015 nuclear agreement.

Our Take:

And just like that, 2018 is off to a rip-roaring start. Technology stocks continue to fly high while cryptocurrencies remain in an ongoing state of frenzy. Most of this is highlighted in our Q4 2017 Market Review & Outlook (coming soon), which also details increasingly optimistic investor sentiment, potentially turning it into a bearish indicator. This year’s shotgun start has only reinforced that opinion.

Frothiness seems to be growing, and nowhere is that more evident than cryptocurrencies. It’s usually a red flag when everyone you know is trying to strike it rich through the same investment. We saw it in the late ‘90s with Internet stocks, and again in 2007 when people with no real estate backgrounds were suddenly amassing small rental empires. The same is happening with cryptocurrencies, where even the mention of the term “blockchain” can send a stock soaring. Just this week Eastman Kodak announced it will launch KodakCoin in order to help photographers better control photo rights. The stock jumped 120% on the news, and another 57% the following day. It then dropped 21% on Thursday after South Korea announced it will crackdown on digital currencies. This is nuts.

Elsewhere, the Wall Street Journal pointed to a couple surveys indicating growing bullishness in the market. One of them even showed the strongest amount of bullishness since 1987. You’ve probably heard the term “the market likes to climb a wall of worry.” This means stocks usually rise when there is still a healthy amount of fear and skepticism in the market. The opposite is true when investors become overly optimistic and euphoric.

We’re not saying we’ve reached a point of euphoria—there are still a lot of strong fundamental drivers out there. But sentiment is creeping into the “highly positive” side of the spectrum. It’s an indicator that’s certainly worth watching.

Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.