Wondering[1] how the U.S. stock market keeps skirting disaster? It’s not complicated. For all the drama at their doorstep, trader positioning remains overwhelmingly bullish.
It’s visible in manager surveys[2], which last week showed equity funds only a trifle less long than at the height of January’s euphoria. It’s in markets for call options, where individual investors are engaged in a buying binge of historic dimensions. It’s tech IPOs, stocks favored by short sellers and ones with shaky balance sheets, all of which recently surged.
![image](https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iEn9BGTmuVeg/v2/60x-1.png)
For traders so inclined, each trauma is just another test, even as their frequency quickens. In Tuesday’s version, Donald Trump’s threat to slap on $200 billion more in goods from China[3] sent the S&P 500 down as much as 1.1 percent, while the Dow Jones Industrial Average fell for a sixth day, the longest streak since March 2017.
“We’ve had more negative catalysts and more negative pull this year than we’ve had for a long time, but the positives continue to prevail in the investor’s mind,” Jeff Carbone, a managing partner at Cornerstone Wealth in North Carolina, said by phone. “They’re shrugging off the negativity and taking the positive to a greater extent that this is not the end.”
It’s not that people haven’t been warned. They have their memories of February and March, and strategists at banks from Morgan Stanley[4] to Goldman Sachs have repeatedly urged investors to rein in optimism, citing everything from politics to peak earnings and monetary tightening. Earlier today, Citigroup flagged a potential bubble in growth stocks.
But the caveats have gone unheeded. In one example, smaller options investors, defined as those who typically trade 10 contracts or...