Stocks are surging at the fastest pace in a decade as traders fly 'closer to the sun' - and that's a reason to be very nervous
- It took the benchmark S&P 500 just 13 days to climb from 2,700 to 2,800, by far the fastest 100-point gain since the global financial crisis.
- While this highlights just how hot the stock market is right now, CLSA argues that it should also be a cause for concern as valuations get extended.
Just when it seems the stock market is running out of ways to remind investors that it's virtually unstoppable, it goes and does something unprecedented.
Such was the case with the S&P 500's recent ascent above 2,800. It took the benchmark equity index just 13 trading days to exceed that level once it passed 2,700, by far the fastest 100-point jump since the global financial crisis, according to data compiled by CLSA.
Investors are tempting fate as they continue to push stocks higher, says CLSA, which also notes a series of overbought indicators that suggest the S&P 500 specifically looks stretched.
"Market participants are flying closer and closer to the sun, trusting that their wings aren't made of wax," CLSA investment strategist Damian Kestel wrote in a client note. "No doubt at some point there'll be a few more additions to the Library of Mistakes."
Kestel's warning - and his analogy of choice - is similar to one that's been continuously voiced by Bank of America Merrill Lynch's chief investment strategist. Michael Hartnett has coined the term the "Icarus trade," which refers to the "melt up" in stocks and commodities seen since early 2016 - one it sees as unsustainable in the long term.
Still, strategists across Wall Street remain optimistic on the effect of GOP tax reform. They see the tax cuts and repatriation holiday offered by the recently passed bill underpinning continued gains in the S&P 500.
At the end of the day, this war between skeptics and market bulls will rage on. The best approach is probably to proceed in cautiously bullish fashion, and continue enjoying the market's many milestones along the way.