Market Thoughts

From zerohedge.com {Excerpt with my highlights}:

The US stock market is up about 9% since June 1 despite weakening fundamentals for US companies and weakening economies around the world, including in Europe. Morgan Stanley's Adam Parker thinks the reason for the rally is investors’ dream that macro policy in the US and Europe will prove to be more effective this time around than in the recent past.

Perhaps the incessant calls of market participants that things must be good given the performance of the market in the face of weakness are simply investors exhibiting the 5 Kubler-Ross stages of grief at a new reality that doesn't cognitively fit with their hopes and dreams...

Sentiment is the key to the market outlook.... Everyone talks about being pessimistic, but what I hear from my conversations with investors is generally optimism. Most people seem to think earnings are holding up pretty well, that the estimate reductions are a healthy reset, that macro policy will be more effective going forward. I have been told that if the market has held up this well despite all the bad news, just think how well it can do when the news improves. My response to all this optimism is to remind investors that analysts and investors tend to want to be optimistic and that the market runs on a buy-the-dream mentality. I am wary when people claim to be a contrarian bull today. They should not pretend they are alone on an island in their bullishness.

Comment:  Sentiment is the key to every market.  Institutional investors have been bearish since the spring and that has led to higher cash positions and under performance.  Sentiment has started to turn around to a more positive level just when we have become over bought in our measurement of money flows.  We'll see where that leads but historically that has led to at best a period of choppiness for share prices.

Link:  Zero Hedge: "The Market Runs On A Buy-The-Dream Mentality"