The doomsayers say the market is vulnerable after a period of unusual quiet. For instance, the S&P 500 hasn't closed up or down by more than 0.3% for 12 straight trading days, breaking the previous record of 10 days last set in 1966.
They also note that stocks are as expensive as they were around the dotcom bubble, judging by the cyclically adjusted price-to-earnings ratio.
In other words, you could say that this market is both complacent and euphoric. But those arguments jump the gun, according to a team of equity strategists at Morgan Stanley led by Michael Wilson.
"While we have not been disappointed by equity market returns this year - S&P 500 total return is 12% and MSCI All Country World Index total return is north of 15% - there continues to be a level of skepticism that seems out of whack with what is actually happening," Wilson said.
"Investor complacency and euphoria is far from present in today's markets based on numerous sentiment and positioning data combined with anecdotes from our hundreds of institutional and retail client interactions."
It's not a stretch to argue against this position, considering the market's streak of new highs. As Wilson noted, bull markets typically go out in a blaze of euphoria, as investors, including latecomers, embrace the forces that supported the rally all along.
This bull market is arguably being prolonged mainly by strong earnings growth, central bank support, and an improving macroeconomic picture in many countries. But it's progress on tax reform in the US that could trigger a rally that's truly euphoric, Wilson said.
For now, Wilson showed that Morgan Stanley's aggregate of various gauges of stock-market risk, such as the ratio of rising stocks to falling stocks, is still near neutral ground.
Morgan Stanley
Cognizant of the risks to the market, many investors have begun pulling out of US equities, with some opting for less expensive emerging-market stocks. This so-called de-risking since the US election is diverging from indicators of bullish sentiment, Wilson said.
Morgan Stanley
"We would change our tone if fund flows into equities pick up meaningfully, hedge fund net exposure rises to the mid-50s (percent basis) and sentiment polls make another leg higher, but we're not there yet," Wilson said.
Wilson's team has a year-end S&P 500 target of 2,700, about 9% above current levels. That's the most bullish on Wall Street.