(Bloomberg) -- It was around the holidays when things started getting “totally insane” for John Petrides. With stocks raging, fund clients left him alone for exactly one day: Christmas. They started calling again the next morning and haven’t let up in the four weeks since.
“The intensity is crazy” -- both at home and in the offices of Point View Wealth Management in Summit, New Jersey, where Petrides manages money. “Phone calls, emails, conference calls, and everyone wanted to know about the tax cuts and what it means for the market.”
On the Milwaukee trading floor of Robert W. Baird & Co., the phone rings and the volume of emails and instant messages fluctuates with the suddenness of market moves. One of the busiest days was Tuesday, when a midday swoon knocked the Dow Jones Industrials down almost 400 points from its high. Now that reversal’s just a blip.
“It’s relentless and remarkable,” said Michael Antonelli, an institutional equity sales trader and managing director there. “When you see people buying an industrial stock, Boeing, like it’s a FANG, you know that’s emblematic of this rally when they are buying stocks with both hands.”
Such are the lives of stock advisers when the S&P 500 rallies in 10 of 13 days to begin a year. It just capped its third straight weekly advance to post the best start since 1987. Even with Tuesday’s turnaround, the benchmark added 0.9 percent to 2,810.30 over the four days, while the Dow rose 1 percent to 26,071.72 and the Nasdaq Composite climbed 1 percent to 7,336.38.
Two things are driving the rally. One is earnings optimism fueled partly by President Donald Trump’s tax overhaul. Based on analyst forecast for individual companies, S&P 500 members are expected to earn a combined $151.60 a share in 2018 and $167.40 in 2019. Both figures have risen about 4 percent from mid-December for one of the biggest upward revisions on record.
The other is the crush of money landing in equity markets. Global stock funds have taken in $58 billion over the last four weeks, the most ever recorded, according to Bank of America Corp. research based on EPFR data. That includes $23.9 billion last week, with the largest share going to to U.S. funds.
It’s all muting skeptics who get nervous because the S&P 500 hasn’t suffered a 5 percent correction in a year and a half. Animal spirits are rising everywhere -- stock indexes in Hong Kong, Brazil, Italy and China are all up more than 5 percent already in 2018.
In December, Washington’s tax debate had the undivided attention of UBS Wealth Management’s Max Kunkel -- who was sitting in Switzerland. For Kunkel, who helps oversee $2.3 trillion for the bank’s wealthiest clients, the passage of the tax cuts was a make-or-break moment for U.S. equity exposure, which he’s been cutting since mid-2017 in favor of emerging and European assets. It’s a strategy he reconsidered.
“The tax reform clearly brought a change of fundamentals,” said Kunkel, an ultra high net worth investment strategist at UBS Wealth Management. “We called for a 15 percent earnings growth if the tax plan passes and an 8 percent growth if it doesn’t. For me in Zurich, what was happening in Washington was a big deal.”
Optimism that a Trump-fueled rally will keep going is high among institutions and mom-and-pop investors alike. The price of one-month bearish S&P 500 puts has fallen to multi-year lows relative to bullish calls as short interest in the companies listed on the main U.S. exchanges fell to the lowest since February last month. A survey by the University of Michigan shows that 66 percent of Americans think the stock market will go up in the next year, a record high.
For Leo Kelly, chief executive officer at Verdence Capital Advisors, this means more questions from clients on the sustainability of the rally.
“I am getting more calls than before, and half of the clients is asking if it’s time to pull back from equities, while other half wants to go all in,” Kelly, who helps manage $2.3 billion for people with an average more than $10 million in assets, said by phone. “I don’t let them do either of these. The market may have more room to run, but I keep saying to my clients, ‘Remember what you felt in a 2008 crash and how you promised not to overextend in one asset class?’ ”
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