Despite the market dodging one bullet after another, investors by at least one account are more worried than they've been all year.
Yet a legitimate argument for a substantial downturn in stocks that could turn into a bear market is getting harder and harder to make.
Not that many aren't trying: Worries about economic growth that could turn out weaker than expected, central bankers putting the screws to monetary policy and valuations getting out of whack are just three arguments against the market.
But none of them seem to be sticking.
Jonathan Golub, chief equity strategist at RBC Capital Markets, took a stab at it in a note sent to clients Monday morning. He laid out four fairly common bearish arguments these days, but concluded that they are "increasingly contrived":
- 1. Purchase Managers Indexes "rolling over." The PMIs are closely watched gauges of manufacturing activity that show the percent of companies expanding, and they've been weakening lately. The most recent reading for April was 54.8, the lowest of the year. However, Golub said history shows that as long as the reading stays above 52, that's positive for stocks. (A reading below 50 indicates contraction.)
- 2. The debate between soft data and hard data has been ongoing through the year. The former consists of sentiment gauges while the later indicates actual activity. Hard data have been lagging high levels of soft data, but Golub says that's not unusual: "They're designed specifically to lead the hard data."
- 3. Valuations: At 17.3 times earnings, S&P 500 stocks are priced above normal. Golub says that as long as the U.S. economy avoids recession, elevated valuation shouldn't be a problem.
- 4. Perhaps the most important is the Trump trade. Stocks have been in rally mode since Donald Trump's win in November's presidential election. Therefore, some fear, an inability to get his pro-growth agenda through Congress will spell doom. However, Golub points out that most of the Trump trade has eroded anyway — the dollar has weakened, financial stocks in particular have stalled and some of the biggest gainers have been defensive rather than cyclical names.
"This leads us to believe that the market is discounting very little in the way of policy changes, making stocks less vulnerable if they don't occur," he said.