Stocks Are Hitting New Highs and Investors Don’t Believe It

A scene from the floor of the New York Stock Exchange on Monday. (TIMOTHY A. CLARY / AFP / Getty Images)

It’s lonely at the top. Just ask stock market bulls.

The S&P 500 and Nasdaq Composite finished last week at record highs, and look poised to add to those gains. Yet optimists are still thin on the ground.

Trivariate Research held its marquee client event this past week, with buyside participants bringing their favorite stock ideas. One of the main messages, as founder Adam Parker noted, is “that it is contrarian to be bullish.”

After surveying attendees–not a statistically significant sample, but nonetheless a diverse set of owners of big asset portfolios–Parker found that the majority thought that the S&P 500 would finish 2025 between down 5% and up 5% from current levels. No one saw another big leg up.

“NO investors thought we would end the year more than 10% higher than today,” he wrote.

That dovetails with data on money flows from other institutions. Deutsche Bank strategist Parag Thatte noted Friday that he sees “few signs of strong bullish sentiment and risk appetite.”

Although the share of portfolios placed in equities has bounced back from April lows, it is still far below February’s levels, he said. “Positioning in most sectors remains below historical average, with the defensive Staples and Utilities the only ones above and only slightly so, and Tech and other cyclicals all below,” he wrote.

With investors devoting a lower-than-normal share of the money they have in the market to stocks, that leaves corporate buybacks doing a lot of the heavy lifting in terms of getting stocks to new highs. Buybacks tend to lift stocks by reducing the supply and because earnings per share rise as the share count declines, all things being equal.

Morgan Stanley equity strategist Michael Wilson echoed the same sentiment Monday. “We have met with many investors and corporates over the past few months, and the number one question we continue to get is why are equity markets so strong in the face of seemingly negative headlines, ranging from trade uncertainty to geopolitical tensions,” he wrote.

On the face of it, the lack of bullishness seems reasonable. Between multiple wars, tariffs, and a spending bill that will likely pile on more government debt, investors have plenty to worry about, even before accounting for President Donald Trump’s chaotic governing style. A weakening economy, less impressive earnings, or another trade shock could halt the rally.

Yet beneath all those concerns, there are genuine positive factors at work.

Sevens Report President Tom Essaye noted four. The first is the Trump administration itself; investors have gotten comfortable with the idea that the White House won’t pursue any policies that will damage the economy. “Trump employs a negotiating strategy that involves threatening a near absurdity and then getting people to move in his direction (so the worst case doesn’t happen, but he still exacts gains),” Essaye wrote.

Secondly, he said, there is still no evidence that stagflation is taking hold. Although tariffs may be inflationary, that will be somewhat offset, most investors believe, by lower energy and housing prices. That could mean overall inflation cools enough to allow the Federal Reserve to cut interest rates.

Third, enthusiasm around artificial intelligence is still in full swing.

And finally, stocks don’t look that expensive. The S&P 500 is trading at more than 23 times the 2025 aggregate earnings of $260 to $265 expected for its component companies, but “analysts are quickly pivoting to using 2026 earnings estimates, which are between $290-$300/share,” he wrote.

“Based on that valuation math (6,141/$295) the S&P 500 is trading at just 20.8X earnings, a reasonable number (as long as you agree with all the assumptions built into this rally).”

For his part, Morgan Stanley’s Wilson argues that “the rate of change on many growth headwinds started to ease in April, the same time as stocks troughed” creating an attractive buying opportunity. Moreover, he said, the fundamentals of the rally look good, given that earnings forecasts are being increased and investors are buying stocks in advance of a potential rate cut.

Ultimately, a rally doesn’t have to be loved to be profitable. More and more and more investors are willing to side with the bulls, even to a small extent.

For now, that seems to be good enough.

Write to Teresa Rivas at teresa.rivas@barrons.com