Over this past weekend, Barron’s Magazine published its big story the “2017 Market Outlook.” Here is what was interesting, after 8-years of a bull market advance not one of the forecasters had a “bearish” outlook. In fact, as the article concludes:

“If all goes smoothly, our experts’ forecasts might even prove too tepid. The old bull isn’t ready to call it quits yet.”

If that isn’t enough to get you all “giddy” for the holiday season, I am not sure what is?

I have written over the last couple of weeks the markets would likely advance heading into the end of the year as portfolio rebalancing, window dressing and performance chasing all collide to give a lift to stocks. However, as we will examine, there is sufficient evidence the markets may have run too far, too quickly.

Signs Of Exuberance

It really isn’t surprising the majority of Wall Street analysts are bullish as prices have advanced improving their performance numbers for the year. Of course, since it is rising asset prices which drives their business – being “bullish” is good for business. (Telling investors to move to cash doesn’t create inflow for their firms or funds.) However, as investors, it is extremes in both “psychology” and “behaviors” that tend to give us the best indications as to future outcomes.

The legendary Bob Farrell had two rules specifically relating to today’s topic.

The first was Rule #9:

“When all the experts and forecasts agree – something else is going to happen.”

Or, as Sam Stovall, the investment strategist for Standard & Poor’s once stated:

“If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

While psychologically it may seem as the markets will rise indefinitely, the reality is they don’t. The reason is excesses are built when everyone is on the same side of the trade.