Great (Stock) Expectations

Via Dana Lyons’ Tumblr,
Consumers’ expectations for stock market gains have never been higher – or more assured.
Since the August stock market low, bulls have had it pretty good. Rally participation has been excellent, as has price structure for the most part. Outside of a textbook successful test of The Most Important Level In The Stock Market, it has basically been a parade of new all-time highs in the major averages. So with the stock market hitting on all cylinders, there is little reason not to expect more of the same. That may just be the problem, however.
With stocks up sharply since August, not to mention the past 8 years, it should be no surprise that bullish sentiment has followed suit. That’s not necessarily a bad thing. Bullishness is required to attract flow of capital into stocks and, thus, propel the market higher. However, bullishness can eventually become so rampant that there is essentially nobody left to buy stocks – or at least not enough to perpetuate a rally. Identifying those relevant extremes is the tricky part, though.
A case in point can be found in the University of Michigan’s Survey of Consumers. One of the questions asked of respondents in the survey is their estimation of the ‘probability of an increase in the stock market in the next year’. Among the various ways that the UM breaks down the data is by taking the mean response to that question. We mentioned in a post last month that the most recent reading (August) saw the mean response register in at 62.7%. As we noted, that was the 2nd highest reading in the survey’s history (back to 2002) behind only June 2015, which, of course, occurred near an important intermediate-term top.

This post was published at Zero Hedge on Nov 29, 2017.