Investor sentiment is now in the wildly bullish camp. The recent spat of “better than expected” earnings shifted market sentiment on a dime. The latest reading on the AAII% bulls shows a very high reading of 48. This has typically been a level associated with sharp stock market sell-offs.
The latest readings from the State Street Investor Confidence survey also show extreme signs of optimism”
“The index results strongly reflect increasing investor strategies designed with a view that the global recession will wane more rapidly than many had feared,” commented Froot. “Investors are now adding risk to their portfolios at an impressive rate, faster than we have seen in several years. In fact, this is the highest level the ICI Global index has reached since mid 2004. That is an impressive turnaround over last October, when the ICI Global reached its lowest-ever-recorded level of 82.1. Note the marked contrast with Consumer Confidence, which remains more focused on lagging unemployment.
“European confidence is much stronger this month, partly because of the concerns around the US seeming to abate, but also because the contagion that might have brought down their own financial institutions seems to be dissipating fast,” added O’Connell. “Asia has seen less variation in expected growth rates than the West and confidence there continues to strengthen, although there was never such an Asian wholesale fear of risk.
This is never a comfortable level of optimism for me. There is near universal agreement on the recovery trade. We’ve been bullish for weeks now, but the this side of the boat has gotten awfully crowded. I am a seller into today’s 2% move in the S&P. Although my target of S&P 1,000 is still 1% off I feel as though the risk/reward in this market has changed enough to warrant a 0% equity allocation. We’ll revisit the equity portion of our portfolio in the coming days and weeks.
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.
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