The saving grace comes from timeframes. Wall Street's strategists have much shorter timeframes than most retail and institutional investors do -- and so they tend to be more reactive to recent price action. With investment newsletter writers, money managers and individual investors still looking pretty anxious about the market right now, it's way too early to call for a sentiment top.
2. QE Won't Last Forever
A more valid bear argument is the fact that the
programs of quantitative easing -- or QE -- won't last forever. The Fed has been taking a two-pronged approach to boosting equity markets since the financial crisis of 2008 reared its head, shoving interest rates down near zero and directly pumping cash into the market with efforts such as QE3 and Operation Twist.
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Over the long-term, both of those actions correlate extremely well with market rallies. So when Ben Bernanke pulls the plug on the Fed's efforts, is he going to be pulling the plug on the stock rally as well?
That's a much harder question to answer.
This rally has been largely structural. In other words, a lot of equity buying has happened because investors haven't had much choice in the matter: The Fed has made it a question of parking cash in "safe" investments that are guaranteed to have negative real interest rates, or investing in an equity market that's been offering stellar performance for the past four years and change.
At some point, a switch is going to get flipped that's going to turn this rally from a structural rally into a confidence-fuelled rally. Once that happens, the Fed's QE pull-out isn't going to kill stocks; it's going to make investors more confident in buying them. Until that switch is flipped (the sentiment numbers I mentioned make it clear that it hasn't happened yet), your stock portfolio is definitely at the mercy of the next Fed meeting.
3. Foreign Markets Have Cooled
When I wrote about four reasons to buy stocks back at the start of February, foreign markets were on fire. Markets in the EU had been pushing into new highs at the exact same time that Japan was coming off of a generational bottom and indexes like Hong Kong's Hang Seng, the Shanghai Stock Exchange Composite, and Mexico's Bolsa were all in rally mode.