With stock markets rising to new records, there has been a dramatic increase in the number of day traders, small and big investors who "buy on the dip," confident that stocks will sharply rebound after small declines, The Wall Street Journal reports. Pullbacks in the major U.S. stock market indexes have become smaller and shorter during the past two years, followed by faster rebounds to their previous levels. 

With interest rates staying low, stocks still look attractive to many investors, despite high valuations. Indeed, just about any price decline, for whatever reason, is being taken as a buy signal for eager bargain hunters with cash burning holes in their pockets. More worrisome, the Journal adds, is growing talk on Wall Street of a "Fed put." That is, an unfounded belief that the Federal Reserve will rush in to prop up the markets should stock prices tumble. Bears say all this reflects excessive complacency by investors who will suffer major losses when stocks finally plunge. (For more, see also: Stocks: The "Buy On The Dip" Party May Be Over.)

Source: The Wall Street Journal

Long March Upward

Through Friday, a record 246 trading days have passed since the S&P 500 Index (SPX) went without trading more than 3% below its record high, according to research by LPL Financial cited by the Journal. Additionally, the S&P 500 has not registered a correction of 10% or more from a recent peak since February 2016. 

The buying frenzy is global. The Nikkei 225 Index in Japan, though still well below its all-time high, is now at its loftiest level since 1996, the Journal says. The FTSE 100 in London and the DAX 100 in Germany, meanwhile, have set all-time records. Additionally, the phenomenon of quick rebounds in the markets after bad news sparks a pullback also is globalized, the Journal adds.

Low Tolerance for Pain

With the last bear market having ended in March 2009, and with investors having gotten used to an almost inexorable upward trend in stock prices, veteran market observers warn that a sustained downdraft may cause a sharp turnabout in psychology, from giddy optimism to utter despair, triggering waves of panicked selling. "People have just gotten so immune to any pain and anguish in any of these markets that when it happens it is going to be very psychologically painful," as Marilyn Cohen, president and owner of Los Angeles-based Envision Capital Management told the Journal.

One danger cited by the Journal is the possibility that inflation may surge, prompting the Fed and other central banks to raise interest rates faster and higher than previously expected. This would drive down the prices of stocks and bonds alike. Similarly, if the Fed and other central banks miscalculate in unwinding their massive sheets, doing it too quickly, this also could have the same effect. (For more, see also: Stocks Face "Nasty Shock" From Fed-Created Bubble.)

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