Investors Are Too Exuberant
The bullish case for stocks is always the most compelling at market tops.
Investors are too bullish for their own good.
Photographer: Kena Betancur/AFP via Getty Images
Ask almost anyone on Wall Street these days what to expect in the months to come and the answer is always the same: once the Covid-19 vaccines are mostly distributed, people will begin to travel in unprecedented numbers, retail sales will skyrocket and the economy will boom. The consensus seems to be for the economy to expand around 6% in the second half of the year. They say the risk is not that growth will fall below that number, but come in much stronger. I haven’t found anyone willing to take an opposing view.
But there is a general principle of investing that you want to buy the rumor and sell the news. Hedge funds and big institutions have been buying the rumor of a coming economic surge for some time now, and the trade is very crowded and nearly fully priced, as evidenced by the shares of companies owning airlines, cruise ships and theme parks. What will happen once the boom materializes?