The S&P 500 fell 0.2 percent last week, dragged down by a 0.7 percent decline on Friday after oil prices rose following a US airstrike on Iran.
However, Nigam Arora said that oil should not be the main concern for investors.
“The real danger to investors is not a war with Iran but the simple fact that this stock market is controlled by the momo (momentum) crowd,” he said. “The momo crowd is fickle and can easily start selling if momentum reverses.”
In the meantime, though, momentum in the market may be building. Ben Breitholtz, a data scientist at Arbor Research, analysed commentators on financial Twitter and found that typically pessimistic commentators are becoming less so.
Still, others have noticed that momentum is concentrated in the mega-cap technology stocks like Facebook, Apple, Amazon, Alphabet and Microsoft while the small-cap Russell 2000 index has underperformed.
“It is clear that the market’s idea of investing in 2020 is for all dollars to flow into the same five names,” wrote Mike O’Rourke, chief market strategist at JonesTrading, on Thursday.
This divergence between the top and bottom performers may be a cause for concern. John Hussman, president of Hussman Investment Trust, noted in his latest article that uniformity of gains among various market segments “is a hallmark of robust bull market periods” while a loss of uniformity “is the hallmark of a market that is losing its engines”.
Hussman also pointed out that market valuations are nearly three times the levels that have historically generated normal long-term returns.
Indeed, a CNBC article over the weekend said that high stock valuations are among risks for the market and quoted Societe Generale analyst Albert Edwards as saying: “The US equity market has become totally detached from underlying profitability.”
The article also noted that analysts have cut earnings estimates, companies are “piling on debt” and recession remains a risk.
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