Are markets climbing a wall of hate?

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Do you hate the stock market rally that has driven the S&P 500 up more than 12 per cent since the start of June? It's a strong word, but it is being used a lot in market commentary these days – so much so that we might soon be saying that markets climb a wall of hate.

CNBC in particular likes the term, and the blog Zero Hedge has used it too. But even Barron's has recently called the rally "unpopular," which sounds like the same thing. And Brian Belski, chief investment strategist at BMO Capital Markets, called the summer's gains "one of the most loathed market rallies in our collective careers."

Whatever the term, the meaning is the same: Many investors have expected stocks to drift sideways or perhaps even correct, given the dismal state of the global economy and the feeling the U.S. corporate earnings have more or less plateaued. Trading volumes have been absurdly low in recent months, and normally bullish stock market strategists have maintained very conservative targets for the S&P 500.

But James Bianco, via The Big Picture, takes exception with the idea that the rally is hated: "If anything, this rally is getting overbought because of too much optimism," he said.

Using surveys from Investor Intelligence, he shows that the percentage of bearish and "correction" investment newsletters has fallen to very low levels, while the percentage of bullish newsletters has rebounded to above 50 per cent from a spring level below 35 per cent.

As well, the CBOE Volatility Index, or VIX – a "fear gauge" that tends to rise with investor anxiety – is close to multi-year lows. On Monday, it was just above 14, down from 27 before the summer rally began and a recent high of about 45 last October. In other words, the "hated" rally has coincided with an investor attitude that can only be described as complacent.

Instead, Mr. Bianco believes this rally has been met with such vehemence simply because massive intervention from central banks have overshadowed things at a more corporate level.

"Simply, the actions of people like [Federal Reserve chairman] Ben Bernanke or [European Central Bank president] Mario Draghi matter far more than any specific fundamental of a company," Mr. Bianco said. "It's as if every S&P 500 company has the same Chairman of the Board that only knows one strategy, resulting in a high degree of correlation between seemingly unrelated companies."

You saw this in action last week, when the ECB triggered an impressive global rally in stocks after it announced a plan to buy unlimited quantities of government bonds from distressed European countries in an effort to stabilized the region's debt crisis. And this week, all eyes are on the Federal Reserve as it prepares to unveil its monetary policy statement on Thursday. Hopes are high that the Fed will reveal another round of economic stimulus to help counter signs of a weakening U.S. economy.

If markets rally on Fed action, you will probably see the word "hate" a few more times.