JPMorgan's Tom Lee: One Thing Puzzles Me About This Stock Market Rally

No one has made any money on it!

JP Morgan’s Tom Lee spoke with Bloomberg’s Carol Massar on Friday after the S&P 500 booked its best quarter in 14 years.

“Something that’s been puzzling about this rally that started in March ’09 is that the public hasn’t really participated,” said Lee. 

“They pulled $300 billion out of the equity markets over the last three years.  And trading volumes have been low, which means the institutions haven’t really been participating in this rally either.  Institutional volumes actually continue to shrink.”

In other words, the stock market rally has largely been driven by a couple of guys, trading stocks back and forth to each other while most sit idly by on the sidelines.

But, is anyone really surprised by this lack of participation?  The last three years have often been called one of the most hated rallies in history.  And most “experts” have advised investors to be cautious.

Back in December when Business Insider surveyed Wall Street’s top strategists, the lack of bullish conviction was reflected by the consensus year-end S&P 500 target of 1,363.  At the time, the statement that epitomized the Street’s wishy-washy sentiment came from Nomura’s Ian Scott:

Putting things bluntly, either we have another very serious credit event with consequences at least as severe as the Lehman Brothers bankruptcy, or stocks are probably a buy.

You can’t blame people for sitting on the sidelines after hearing statements like that.

To be fair, JP Morgan’s Lee has been on the bullish end of the Street for a while.  His year-end target for the S&P 500 has been and continues to be 1,430.

Going back to the matter of lack of participation by the public, some strategists like Goldman’s Jim O’Neill and BlackRock’s Bob Doll think this is reason to remain bullish.  They see investors pouring money into the markets, ultimately pushing stocks even higher.

As for the folks who are worried to jump in, they should know that worry is often a good contrarian bullish indicator.  Federated Investors’ Steve Auth, who has a 1,450 target on the S&P 500, recently reminded us, “In any good market, you need to have headwinds, a wall of worry.”

Here’s the Lee’s interview with Bloomberg’s Carol Massay:

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