- The Dow Jones rally is heating up so fast it has big bulls on Wall Street worried.
- Low earnings growth and the over-confidence of investors signal that a pullback is likely.
- Top money managers expect the stock market to return to fair value in the short-term.
The Dow Jones Industrial Average (DJIA)’s longest-running bull run in U.S. history is keeping investors happy. The mega-wealthy added billions to their name in 2019 and the average 401(K)s are expanding. But, even the biggest bulls of the U.S. stock market are starting to worry that the rally is getting out of control.
When the Dow Jones rally goes on too fast, it becomes vulnerable
It is the same with both established and emerging markets; when a market begins to heat up so fast in a short period of time, it becomes vulnerable to an abrupt pullback.
On CNBC’s Trading Nation, Yardeni Research president Ed Yardeni, known for his bullish calls on the S&P 500, said that he is becoming increasingly concerned about a market melt-up.
If the Dow Jones and the rest of the U.S. stock market continue to expand at the current rate at a rapid pace, the strategist said a 10% to 20% correction is due.
The main problem with the current upwards movement of the Dow Jones is that not enough investors are cautious. Everyone is confident that the momentum of the rally will be sustained and a very few investors are worried about the market.
As CCN reported, the Dow Jones is considered over-valued based on its recent trend when earnings growth is considered. Financial data providers are targeting a 5% earnings growth rate in the first quarter of 2019, and it is not sufficient to support the current strength of the U.S. stock market.