02 03 2014

Is too little market fear something to fear?

In searching for things that could poke holes in the bullish stock market story, Wall Street has come up with a catchy phrase that suggests complacency is running high: "There is nothing to fear but nothing to fear."

But there are always things to fear in the stock market, even when things are going well and the path of least resistance appears to be up. That's why Edward Yardeni, chief investment strategist at Yardeni Research, says he's "concerned" that investors are suddenly fearless.

In a client meeting in London this week, Yardeni says a chief investment officer at a client firm said that when asked to come up with a list of what could go wrong in 2014, the CIO said his team "couldn't come up with anything compelling." Yardeni did come up with some "trouble spots," but admits his list isn't "compellingly troublesome, either." 

One risk is that when the Federal Reserve starts tapering its market-friendly bond-buying program, perhaps as early as next week, the 10-year note yield, now 2.80%, will move higher.

Higher borrowing costs could hurt housing and stocks, and cause instability in emerging markets. Deflation is another worry. 

And despite economic upturns in Europe and Japan, which are a plus for corporate profits, growth remains tepid, and reforms in Tokyo "may already be losing (their) mojo." His No. 1 worry? "A melt-up in stocks," driven by underinvested folks "who don't seem to be worrying anymore."