The most hated bull market in history is slowly but surely turning into one built on perennial optimism. If there was one major insight from 2013 it was that the stock market, increasingly, is rallying on true optimism rather than merely overcoming what long looked like negative expectations. The S&P 500’s meager earnings growth this year combined with strong multiple expansion makes this clear.
This week’s Investor’s Intelligence survey was another sign of strong optimism as the bulls surged to 59.6%. This is fast approaching the “danger zone” according to the survey. Levels above 60% are extremely rare and were last seen in October 2007 when the market peaked. Here’s more from II:
“They show another high for 2013 with the fifth week in danger territory above 55%. We continue to note the most optimism since October 2007 [62.0%] when their count last exceeded 60%. That level is now in sight. The lofty bullishness suggests the majority of investment funds are committed. A more recent peak for the bullish level was 57.3% in April 2011. Markets didn’t fall immediately from there but were substantially lower by the end of that August. “
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Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.