Markets are very Darwinian, with a tendency to deliver an outcome that would not just make a greater fool of the investing majority, but also induce humility in even its most successful and confident students.

After being fooled in March, investors are sitting out this equity rally. Four of the five largest weekly inflows by institutional investors to money market funds have come since March 18, when stocks bottomed. As the old adage goes, “Fool me once, shame on you; fool me twice, shame on me.”

Total assets parked in money market funds increased to $4.7 trillion as of April 30. That’s the highest amount ever, nearly $500 billion more than the level of assets recorded a month ago.

Barron’s latest Big Money Poll noted managers are “anxious” about the near term but “largely upbeat” about the outlook for 2021. Thirty-five percent of poll respondents consider a spread of the pandemic the biggest risk facing the stock market; 24 percent cite a recession; and 14 percent, a depression. Barron’s readers are also wary of stocks’ progress this year.

Less than one out of four AAII members describe their short-term outlook as “bullish.” Bullish sentiment is below its historical average of 38 percent for seven consecutive weeks. Jim Cramer told Mad Money viewers on April 27 there’s very little that’s worth investing in.

DoubleLine CEO Jeff Gundlach believes that “we are not out of the woods” yet and that a retest of the low is very plausible. He sees a “tough, tough sledding” for stocks. Scott Minerd of Guggenheim Investments said that gains in the S&P 500 are unsustainable and the index could still fall as low as 1,200. He is telling clients to “prepare for the era of recrimination.”

Even Warren Buffett is spooked. He prefers to use the record $137 billion on Berkshire Hathaway’s balance sheet to fortify his company against “worst-case possibilities.” He said, “Our position will be to stay a Fort Knox.”  

Analysts have downgraded earnings estimates for S&P 500 companies at the fastest pace in a decade. In January, they were upgrading price targets for stocks at a record pace. Goldman has issued a warning about the stock market comeback because of its reliance on just a few stocks.

From the March 23 low, the S&P 500 is up 31 percent. No one believes that stocks may have just entered a new bull market. Bets against the biggest ETF tracking the S&P 500 are at the highest level in data that goes back to January 2016. Hedgers’ position in equity index futures is at an all-time high.

On March 25, we wrote, “The best guide is to expect the opposite of whatever now reigns in the public consciousness.” We turned to history to get acquainted to previous stock market crashes and found that what comes next is an explosive rise that recovers much of the steep drop. We expect many major markets to fully retrace March losses.

Contrary to consensus opinion, we are “largely upbeat” about the near-term outlook and “anxious” about the outlook for 2021. That is the correct lesson from history. The three most relevant “crash” templates (1929-32, 1937-42, and 1946-49) had corrective (wave B) rallies that lasted 6, 9, and 15 months. We can chop higher for at least 4-6 months—until the fools rush in.

In the words of Bernard Baruch, who made his fortune speculating during the early 1900s, “The main purpose of the stock market is to make fools of as many men as possible.” So, when will the fools rush in?

When we stop spreading headline-grabbing horror stories about Covid-19. Media has exaggerated the reality of the situation as pessimism is seductive and bad news leads to more clicks and engagement.

When we question the veracity of scientific models that professed apocalyptic results. When new data reveals that Covid-19 is far less fatal and more easily spread than epidemiologists were assuming.

When we see the worst of the economic data and the market shrugs it off because the virus data is improving and “beating” expectations.

When people aggressively defending the lockdown open their mind to the tremendous social and financial consequences. Right now, Americans protesting to reopen the economy face only contempt from elites.

When schools re-open in September, and work returns to a degree of normality. People start travelling again.

When we experience a second wave of infections but see that life goes on. We realize this is something we have to live with—it is not the end of the world.

When Wall Street strategists upgrade their S&P 500 year-end targets. In March, most banks slashed their forecasts to anywhere from 2,700 to 3,000. Four banks suspended their year-end targets amid virus uncertainty.

And lastly, when investors are afraid of looking foolish for missing the whole rally.

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