Roben Farzad and Tara Kalwarski of BusinessWeek look for reasons the stock market can appreciate so rapidly in the face of weak fundamentals and finds a herd mentality that is leading to the opposite of a meltdown, what they call a melt up. They get a good quote from an investment pro on where the buying is coming from along with informed speculation on why.
"We've spent a considerable time of late assessing the conditions for a melt up," admits Bernie Schaeffer, chief executive of Schaeffer's Investment Research. He says he is baffled at how the market's rally this year has essentially been devoid of improved investor sentiment and big inflows into domestic equity funds. While bond funds have taken in nearly $330 billion so far this year, U.S. stock funds have lost almost $28 billion. A handful of big institutional investors and hedge funds, rather than retail investors, have been responsible for the lion's share of buying this year.
The article goes on to note that conditions that lead to melt ups are easy to spot in hindsight but harder in the moment but notes that social pressure on money managers right now is the biggest momentum driver behind stocks. That's an observation that seems to simple to be true but they argue it well in the piece.
What I'm expecting is people being forced to get in," says Peter Grandich, a veteran investor newsletter editor. "The vast majority of money is managed by professionals who are gauged and measured on performance, a lot of which is judged by the quarter," he adds. "In 2008 people yelled at them for not getting them out; in 2009, people are getting yelled at for not getting in. The pressure to finally commit will be on, whether managers like it not."
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