Stocks are Hitting Fresh Highs, What’s the Catch?

Global stocks are soaring, but some are worried about a market correction

Image Credits: publicdomainpicture.net

The S&P 500 has seen 7.5% gains in January—the highest since 1987. Shanghai Composite, Hang Seng, DAX, and CAC are up 7.6%, 11%, 3.3% and 4.1% respectively. Goldman Sachs has called it the “most extreme start to a year ever.” With enormous gains in stocks and high economic growth the back it up, the markets currently seem to be in good shape.

The S&P 500 has risen by 7.45% between December 29th and January 26th. Image Coutesy of Google Finance

On the other hand, there are a number of Bearish investors. Merrill Lynch, one of the largest, believe that there is a sharp decline coming, and the market will correct itself. According to the Times, ‘Bank of America Merrill Lynch told institutional clients yesterday to brace for a “technical pullback.’ ” They expect the S&P 500 to fall by just over 5% in the coming months. Over the past few days, VIX INDEXCBOE: BVZ, also known as the “volatility index” or “fear index”, has risen sharply, with 14.53% increase in just 6 days. (A higher VIX corresponds to a more volatile and fearful market)

The “fear index” has increased significantly over the past couple of days. Image Courtesy of Google Finance

There are currently several arguments for both a bear market and a bull market — only time will tell who is right.

Sources:

The Wall Street Journal, WSJ City, The Times, Express, Bloomberg, CNBC