Many investors and market technicians have said over the years and decades that it’s healthy for the stock market to sell-off and experience corrections. The problem with that, even if everyone agrees that the Great Recession was far from a healthy sell-off or correction, is that the panic unnerves much of the public and keeps them on the sidelines. The sell-offs in late 2018 and in May of 2019 felt far from healthy to many investors while they were happening, and it’s a good bet that much of the investing public did not sell at the high and jump back in at the bottom.

With the three major stock market indexes having hit all-time highs in July, the markets are dealing with a runaway bull market now that the V-bottom was 10 years ago and the S&P 500 is up 20% so far in 2019 alone. Some market strategists are making updates on their market views for the coming weeks and months ahead. Get ready to hear more about the “healthy correction” again.

Canaccord Genuity equity strategist Tony Dwyer has called out the recent gains as overbought, but while a pullback would be expected, he sees the markets still heading much higher later on in 2019. His report said:

The S&P 500 has reached into a level of overbought territory that suggests a period of consolidation and increased volatility may lie directly ahead. That said, our still positive core fundamental thesis, current valuation level, and intermediate-term tactical backdrop suggest any weakness should prove limited and temporary (<5%) and provide a more attractive entry point for a move toward our 2020 target of 3,350.

Michael Hartnett, Merrill Lynch’s chief investment strategist, released the firm’s July Global Fund Manager Survey. A total of 207 panelists with $598 billion in assets under participated in the survey. Cash levels were down to 5.2% from 5.6% but are still elevated, and 73% of those surveyed believe the business cycle is a top risk to market stability. Meanwhile, trade war risks were down 20 percentage points to just 36% of their surveyed members, while 69% of those surveyed expect a Federal Reserve rate cut in July.

Hartnett also outlined the global fund manager survey look at low inflation and a drop in earnings. The “rules and tools” noted the following:

• relative value indicators are long bonds vs. equities;
• emerging markets vs. developed markets;
• defensives vs. cyclicals;
• and tail risk rules are short Treasuries, VIX, and US high-yield bonds.

Contrarians in the Merrill Lynch note would position themselves as follows:

• higher growth and yields via long cyclicals – short cash;
• long stocks – short Treasuries;
• and long value – short growth.

Lastly, Credit Suisse has issued a market volatility bulletin. Despite upcoming earnings, Credit Suisse pointed out on Tuesday that the average single stock volatility has fallen to 21%, and it is now lower than the volatility readings at the start of the past five earnings seasons. The firm noted that the options market is essentially pricing the next few weeks to be a snooze, and Credit Suisse thinks that is a mistake.

As a reminder, the Dow’s return has been up 17% so far in 2019, versus 20.3% for the S&P 500 and almost 26% for the Nasdaq 100.

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