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From Pamplona to Wall Street: The Bulls are Running

July 19, 2016
Stock investors optimistic as market rises after brexit.

In case you missed the running of the bulls in Pamplona, Spain, last week, you might turn your gaze to Wall Street. The bulls are back! The stock market staged a stunning and impressive recovery off the post-Brexit sell-off, surging to hit new all-time highs. Some are saying after months of sideways consolidation in a large range, the bull market might be back in action.

"Investors have good reason to feel optimistic," says Sam Stovall, managing director at S&P Global Market Intelligence. "Stocks have had a very high wall of worry in the first half. Yet the S&P 500 is up more than 18% since the February 11 low."

The late June post-Brexit vote sell-off "seems to have cleared the system," says JJ Kinahan, chief market strategist at TD Ameritrade. "It has paid people to buy on dips over the last few years. We saw more dip buying."

Investors Adopt Optimistic Outlook

In the face of rising stock prices, investors are registering higher levels of bullish sentiment. Optimism among individual investors about the short-term direction of stock prices is at a level not seen in over four months, according to the latest American Association of Individual Investors (AAII) Sentiment Survey. Bullish sentiment, or expectations that stock prices will rise over the next six months, jumped 5.8% to 36.9%, the AAII says. 

Investors are putting their money behind their beliefs. The most recent Investor Movement Index® reading for June 2016 revealed that TD Ameritrade clients were net buyers of equities in June, with exposure to the equity markets increasing for the first three weeks of the month and declining during the fourth week. (The Investor Movement Index, or the IMXSM, is a proprietary, behavior-based index created by TD Ameritrade that aggregates Main Street investor positions and activity to measure what investors are actually doing and how they are positioned in the markets.)

The Chase For Yield Remains Dominant Theme

Investors continue to search for yield. When the 10-year Treasury is at 1.50%, or less, people are looking elsewhere, Kinahan says. What are the key themes now?

The recent IMX index revealed that TD Ameritrade clients who had been buyers of energy stocks in the past few months (with dividend yields in the 3% area) sold them in June, Kinahan says. "They rolled those positions into automobile stocks like GM and Ford which have dividend yields around 5%," Kinahan says.

Are Stocks Vulnerable to Some Backing And Filling?

Shifting from the rear view mirror, what could lie ahead? The S&P 500 surged from the June 27 low at 1,991 into the last week's all-time high at 2,169. "It’s healthy for markets to have a correction," Kinahan says. He pointed to the 2,120 zone as a potential base if a pullback phase were to unfold. That zone represented the latest swing high hit June 8. 

Stovall weighed in, pointing to the 18% gain in the S&P 500 since February. "There really hasn't been any digestion of these gains. We are probably due for some sort of attempt at profit-taking."

"But, I would not say this is the end of the bull market," Stovall adds. S&P Global Market Intelligence currently shows a rolling 12-month target for the S&P 500 at 2,250, or about 100 points higher than current levels.

3 Questions For Investors Now

This is not the time to sit back and go on auto-pilot. "When you are at all-time highs you should be reassessing your portfolio," Kinahan says. Here are three questions Kinahan says investors can consider now:

1.      Have individual stocks in a portfolio performed as expected?

2.      Is it time to balance a portfolio?

3.      What is the risk to the market at these levels?

TD Ameritrade clients can use the Analyze tab on the thinkorswim® platform to assess the overall market risk of the S&P 500, Kinahan says (see figure 1).


To analyze market risk, log into the thinkorswim platform and click Analyze > Risk Profile. From the menu at the bottom, select “Portfolio Beta Weighted” and type “SPX” in the symbol box at the top. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results. 

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