Tags: Browning | melt-up | stocks | market

WSJ's Browning: Market Participants Concerned About 'Melt-Up' for Stocks

By    |   Monday, 16 June 2014 12:18 PM

Money managers and analysts are starting to worry about the possibility of a "melt-up" in the stock market, writes Wall Street Journal columnist E.S. Browning.

Whereas a meltdown represents a plunge in stock prices, a melt-up constitutes a jump upward. The problem is that a melt-up is frequently followed by a meltdown. That's what happened in late 1999 and early 2000, Browning notes.

Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, warned his clients that "an unhealthy, speculative increase in asset prices," might be on the way, putting stocks and bonds at risk, Browning reports.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000


"If you get a melt-up, it is going to take the market into overvalued territory," Hartnett says. Then unanticipated bearish news, like weaker-than-expected economic growth or corporate earnings, could push stocks into a downward spiral, he adds.

"With the Fed determined to support the economy, few people consider recession likely. So in most people's minds, the Fed's support means stocks can't fall too far," Browning explains. "That kind of confidence is good for stock prices, but it also removes some of the fear that normally keeps prices within reasonable bounds."

Monday, the Standard & Poor's 500 index rose 1.62 points, or 0.1 percent, to 1,937.78. The index is down less than 1 percent from its most recent all-time high of 1,951.27 set a week ago. It has generated a total return of about 4.8 percent so far this year.

Nicholas Colas, chief market strategist for ConvergEx, urges caution on investing in stocks.

The five-year bull market is coming close to an end, he tells CNBC.

Most investors "are missing that we are in the seventh or eighth inning of a big move," Colas notes. "I think you have to begin to be a lot more tactical. If you have big gains, take them off the table. If you want to have one final puff of the cigar, be my guest. But be careful."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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Markets
Money managers and analysts are starting to worry about the possibility of a "melt-up" in the stock market, writes Wall Street Journal columnist E.S. Browning.
Browning, melt-up, stocks, market
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2014-18-16
Monday, 16 June 2014 12:18 PM
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