By James Langton
(May 1 – 18:35 ET) – Since Wall Street is extremely bullish, it may be time to sell, says Wall Street’s most-famous bull, Merrill Lynch & Co. Inc. This is the first time the Street actually got more bullish after a period of extreme volatility, says Richard Bernstein, Merrill’s chief quantitative strategist.
Merrill blames some of the bullishness on the apparent eagerness of investors to”buy on the dips”. The firm is suggesting that investors may have developed a twisted perception of the market, believing that the U.S. Federal Reserve Board will act to stem any major breakdown in the equity market.
While the Fed may have done this in the past, Merrill argues that too many investors are only looking at Nasdaq when they talk about the “market”, but contends that the Fed is sensitive to a broader measures such as the Wilshire 5000. Merrill expects Nasdaq to drop over the next year while the S&P rises, an event that might spur increased rate tightening just when investors will anticipate that the Fed will ease off.
Over the next year Merrill expects a bear market in tech stocks, but “very, very good” performance from the average stock.