It’s been a while since I reviewed the “Wall of Worry” indicator (see here for more info) so now is as appropriate a time as ever. Although the market rally has continued in 2010 we continue to see a great deal of skepticism in markets. This indicator takes the inverse summation of a broad set of LONG-TERM indicators that track consumer sentiment, business sentiment and investor sentiment. This is vastly different than many of the short-term indicators I often discuss – most of which are pointing to severe excessive bullishness right now (see here & here).
As you can see in the chart below the “wall of worry” has peaked at levels over 90 in accordance with major long-term market bottoms. In March of 2009 it peaked at 93.5 and in June 2010 it actually surged back near those levels with a reading of 92.13. Although the equity markets have rallied over 80% the skepticism of a real economic recovery and sustainable market rally has remained extremely high.
As of Friday’s close the “wall of worry” is at 84.33. This is just shy of the highs and well off levels that are consistent with euphoria. During the tech boom when complacency was extraordinarily high the indicator bottomed in the high 40’s. During the less euphoric housing boom the indicator bottomed at 65. Either way, it’s safe to say we’re well off those levels. Based on this metric it’s clear that the “wall of worry” remains quite high and that could be a long-term positive for the equity markets.
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.