Hedge funds might be shying away from stocks, but the market is rising anyway, and that's a bullish sign, says Tom Lee, founder of market research firm Fundstrat.
"We're seeing a movement — a rise in markets while a large contingent is taking themselves out of the market," Lee told CNBC
"Obviously someone else is coming in. The ones coming in are saying, hey, interest rates are back to normal levels, crude is acting like it's not in a continuous decline. Spectacular rally in high-yield. That's bullish."
The 10-year Treasury yield has soared to 2.14 percent from a 20-month low of 1.65 percent just two weeks ago. And oil prices have jumped 24 percent from 5 ½-year lows over the past three weeks.
"It's bullish in the sense that markets are capable of rising while a very large player in the marketplace is de-risking, and that is going to provide fuel later, as they re-risk and add buying power to the rally," Lee noted.
And the reason hedge funds are de-risking?
"I think everyone thinks there's a chance of an idiosyncratic event, whether it's Greece or something happening geopolitically or a deflation surprise coming out somewhere," he explained.
Affluent investors appear go agree with Lee.
A Legg Mason survey
of 458 investors with investable assets of at least $200,000 found that 85 percent believe U.S. equities "offer the best opportunities over the next 12 months" among all global asset classes. That's up from 74 percent a year ago.
"Investors are looking for the U.S. equity market’s strong run to continue," said Matthew Schiffman, head of marketing for Legg Mason. The S&P 500 has tripled since March 2009.
But all this enthusiasm may be a dangerous thing. It's "concerning," Schiffman said.
"Overconfidence can lead to a degree of complacency that could prevent investors from paying close attention to their overall financial plan and how they have allocated their assets as their own needs change," he explained.
"Investors have not changed their asset allocation since we started measuring investor sentiment three years ago, which could be another sign of complacency creep."
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