Stocks Rally Nears Manic Level at Bloomberg Intelligence - Financial Post
financial post: A Intelligence quantitative model says investor sentiment is approaching “manic” territory as U.S. stocks push to fresh highs. The reading comes after the S&P 500 climbed more than 10 per cent in April, a move that has left the rally looking stronger but later-stage for investors trying to judge how much upside is left.
Intelligence strategists Christopher Cain and Nathaniel Welnhofer wrote that the model tracks six components, with high-yield corporate bond spreads, low volatility and pairwise correlations driving it toward that level. “When everything works at once — growth over value, cyclicals over defensives — it’s usually a late-stage tell, not a fresh start,” they wrote.
April's 10 Per Cent Surge
The S&P 500’s April advance was its fifth-best monthly performance in the past 35 years, following a rebound from the March lows that was fueled in part by hopes of easing tensions between the United States and Iran and by a surge in corporate earnings. That mix pushed equities to record highs from an already elevated base, which makes the current stretch look different from the deep selloffs that have historically preceded the biggest snapback months.
From April 2009 to April 2020, outsized monthly gains of this magnitude tended to follow major market drawdowns. This episode is the opposite: stocks rallied to record highs first, then kept going, so the model is flagging sentiment rather than panic. For traders, that shifts the focus from whether the rally can start to whether it can keep broadening.
Russell 3000's 2.9 Per Cent
From 2012 through 2023, the Russell 3000 Index delivered an average return of 2.9 per cent in the three months after repeated elevated sentiment readings. During those periods, the S&P 500 beat the small-cap Russell 2000 by about 178 basis points, suggesting the leadership profile can narrow back toward large caps even when the market keeps rising.
That pattern matches Intelligence’s note that repeated elevated readings have historically coincided with further gains at a more modest rate. “History says returns can still be positive, just less rewarding, with leadership narrowing back to large caps,” Cain and Welnhofer wrote.
S&P 500 Futures at 7:32 a.m.
The S&P 500 had already added another 2.2 per cent less than a week into May, and futures traded 0.1 per cent higher at 7:32 a.m. in New York. If the model’s signal holds, the market can still rise, but the historical playbook points to fewer easy gains and a stronger case for large-cap leadership than for a broad, every-stock advance.
