Investors will continue to ride the speediest rally in US stocks since the Great Depression despite growing concerns the market is overbought and due for a correction.
Wall Street posted its third consecutive week of gains with the S&P 500 now up 6.8 per cent for the year and more than 20 per cent in just six months.
“I’ve never seen a market like this,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Vermont, a market watcher for 35 years.
“I’m showing, by every technical and quantitative standard I have, this market is at extreme levels. But no matter where we start out in the morning, buyers come in.”
The trend of stocks starting off lower in the morning session but ending higher by the afternoon has been ongoing for weeks as investors view the small dips as reasons to buy.
But there is a perceptible level of anxiety in the market. Trading volume has been exceptionally low recently and the CBOE Volatility Index, Wall Street’s so-called fear gauge, is up on the week despite the gains in stocks.
The index is usually inversely correlated to the S&P 500, and a rise in the VIX typically means a drop in the stock market.
The VIX, which ended at 16.43, up 4.7 per cent on the week, is still low but substantially higher than in recent months. It suggests investors see more share gyrations ahead.
The driving force behind the rally is the money that poured into riskier assets like stocks in the last quarter of 2010 after the US Federal Reserve pledged to keep interest rates low.
About 7.13bn shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq on Friday, below last year’s daily average of 8.47bn.