The U.S. stock market’s record-setting run in 2024 is showing no signs of slowing down. If anything, it is picking up steam as more sectors and companies get in on the action.
The latest burst of market momentum helped carry the S&P 500 to another milestone on Friday, when the index tallied its 47th record closing high of 2024. It also capped off a sixth straight week in the green — its longest winning streak since last December.
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The Dow Jones Industrial Average and Nasdaq Composite have been on similar hot streaks, with the former booking its 40th record close of the year Friday. The Nasdaq hasn’t quite returned to its record levels from July, but it’s getting close.
So far, the bull market that began in October 2022 has defied the skeptics at every turn. As more sectors are helping to push the S&P 500 higher, the rally is becoming less dependent on the handful of megacap tech stocks that drove most of the market’s gains in 2023 and the first half of 2024. The number of large-cap stocks in an upward trend has been rising since the summer, and even small-cap stocks are getting in on the action.
But amid the unbridled enthusiasm, some on Wall Street are beginning to worry that investors might be growing too inured to potential risks.
At least one investor has even gone so far as to accuse others of suffering from “invincibility syndrome,” as MarketWatch’s Jamie Chisholm reported on Friday.
Some have expressed concerns that investors might be growing too complacent. Strategists at Citigroup warned on Friday that stocks’ high valuations meant that earnings reports and economic data must continue to impress.
“Back-to-back 20%+ index gains and economic data that has skirted recession conditions broadly are creating an atmosphere of complacency,” said a team led by Citi’s Scott Chronert.
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In a separate report, Larry Adam, chief investment officer at Raymond James, pointed to several indicators of sentiment, positioning and valuation that he said have made him turn more cautious.
MarketWatch has highlighted some of these indicators, among others, below.
Equity put-call ratio hits lowest in over a year
The Cboe equity put-call ratio represents trading activity in bearish put options relative to bullish call options tied to individual equities.
Late last week, the index touched 0.44, its lowest level since July 11, 2023, according to Dow Jones Market Data. In the past, when the ratio has fallen to extreme lows, a pullback has often followed.
Investors are leveraged long the S&P 500 through futures
Every week, the Commodity Futures Trading Commission releases data tallying up short and long positions in futures contracts tied to equity indexes, bonds and interest rates as well as a number of commodities and currencies.
These data show that through Oct. 8, asset managers’ net-long position in S&P 500 e-Mini futures had held above 1 million contracts for four straight weeks. The last time positioning was this stretched for this long was just before the COVID-19 crash in February 2020, the data showed.
All told, this net-long position represents more than $306 billion betting that the rally will keep on rolling, according to CME. Prices for each contract are worth $50 times the level of the S&P 500, which stood at 5,864.67 as of Friday’s close.
These positions are typically enhanced by leverage, since futures traders usually trade on margin. That leaves them more vulnerable to a shakeout if the market takes an unexpected turn.
Brian Allen, chief investment officer at institutional investment manager CS McKee, noted positioning was looking a bit stretched, and not just in the futures market
“Stocks are in vogue again. There is so much talk about, ‘Do you own Nvidia, do you own Netflix.’ There is definitely signs of the fervor of being invested in the stock market,” he told MarketWatch during an interview.
Insider buying has slowed to a crawl
Executives and other corporate insiders often receive shares through stock-based compensation plans. But they can also buy and sell their company’s stock on the open market in transactions that they are required to disclose.
According to SentimenTrader’s Jason Goepfert, the number of insiders buying shares in their companies has recently fallen to levels last seen in September 2021. While insider buying isn’t an exact science, it has in the past been a reliable guide as to whether stocks are looking cheap or expensive.
“Overall, it is fairly clear that sentiment is elevated and on the cusp of complacent,” said Jason Goepfert, chief research analyst and founder of SentimenTrader, in response to questions emailed by MarketWatch.
Still, stocks can continue to climb so long as they keep feeding off their own momentum, Goepfert added. He said he is waiting for individual stocks to show signs of weakness before becoming more concerned.
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Valuations are looking stretched
Wall Street professionals use a number of different metrics to determine whether stocks are cheap or expensive. One of the most popular is comparing the price of the S&P 500 relative to the profits its member companies are expected to reap during the year ahead.
This is called the forward price-to-earnings ratio. Earlier this week, it touched its highest level since July 2021.
But by another measure, stocks are even more richly valued today than they were in 2021. In fact, based on the price of the S&P 500 relative to revenue figures its member companies are expected to record over the next 12 months, the index has reached its most expensive level since September 2000, right around when the index hit its dot-com-era peak.
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“The way I look at the market, no matter how you slice and dice it, it looks expensive,” said Michael Kramer, portfolio manager and founder of Mott Capital Management, during an interview with MarketWatch on Friday.
Key technical indicator is nearing overbought territory
Technical strategists prefer to take their investment cues from the price level of an index or security, rather than from a more detailed analysis of the fundamentals.
And one of the most popular gauges they look at is showing that the S&P 500 reached the cusp of overbought territory earlier this week. The 14-day relative strength index hit its highest level since July on Monday, FactSet data show. When the momentum gauge rises above 70, it has historically signaled that the market is looking toppy.
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“These technical measures, often viewed as contrarian indicators, suggest the market may be ripe for a period of consolidation or vulnerable to a near-term pullback,” Adam said.
