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Came across a story on Axios which declares that 56.4% of Americans think stock prices will increase in the years ahead:

https://www.axios.com/2024/10/31/stock-market-futu...

This from a survey of "adults," which must include a lot of people who don't actually know anything about the stock market, but have an opinion by virtue of its cultural prominence.

The thing caught my eye because it appears to be very rare for more than half of adults to think the stock market will go up; perhaps because the market's cultural prominence varies inversely with performance?

On that basis the 56.4% kind of screams "blow off top," does it not?

Baltassar (100% long)

Good sorta related discussion on the RR pod this week:

https://community.rationalreminder.ca/t/episode-33...

“What does Trump’s re-election mean for the markets? In this episode, Ben and Mark explore The Presidential Puzzle, a phenomenon revealing that equity risk premiums have historically been higher under Democratic presidencies than Republican ones. With Trump returning to office as the 47th U.S. president, they examine how voter risk aversion shapes political outcomes and market expectations, offering surprising insights into this intriguing connection between politics and investing. They also delve into market timing pitfalls, the importance of diversification, and how financial advisors can help investors navigate emotionally charged decisions. To wrap up, Ben and Mark reflect on listener perspectives and explore the intriguing future of Bitcoin in finance. Tune in to learn what Trump’s win means for expected stock returns and more!”

TL;DR Investors expectations are high; returns likely to be low.

That is a remarkable chart. The S&P has had a positive price change 23 of the last 30 years, yet the average expectations of these "adults" has been that more than 60% expect a decline pretty much every year. How can they be so consistently misguided? I suppose the people who actually own stocks have a somewhat better collective wisdom. It throws an interesting tilt at the efficient market hypothesis, the origins of the wealth disparity, the short average holding period, the perception of the economy as it relates to consumer confidence, elections, and I'm sure many other factors.

The current optimism brings back the old adage that you should sell everything when you get a stock tip from a ... (shoe shine boy, taxi driver, whatever the group is currently being disparaged). I'm glad uncle Warren has been helping me accumulate a cash buffer.

On that basis the 56.4% kind of screams "blow off top," does it not?

Baltassar (100% long)

Unless it’s different this time.

AAII.com publishes their sentiment survey weekly online at: https://www.aaii.com/sentiment-survey . It's a nice source for continuously updated data that seems nicely, inversely, correlated with future stock market returns.

The most recent results hardly scream "blow off top" with 37.1% bullish, slightly below the historic average of 37.5%, 24.3% neutral, and 38.6% bearish, which is well above the long term average of 31% bearish, and is also the highest bearish reading of the last 12 months, though it is not remarkably high.

The last bearish reading to beat today's was 11/2/2023 when it hit 50.3%. Late September 2022 there were two weeks of bearish readings at 60% or better, which is notably high. The S&P 500 has almost doubled since then.

March 2009 hit 70% bearish, the highest reading in their database.

The S&P has had a positive price change 23 of the last 30 years, yet the average expectations of these "adults" has been that more than 60% expect a decline pretty much every year.

Yes. The current level of optimism as shown is unprecedented in this century; and especially surprising, I would have thought, given that the winner of the recent election consistently portrayed the economy as doing poorly. But maybe that's what has moved the needle: people who believed what they were told about the economy's miseries now take heart that it will recover its health.

What's most striking, though, is the point you make: most people don't know that the stock market goes up most years. Gregg Easterbrook wrote an article long ago on why economic news is always bad, and he was certainly on to something. If unemployment falls, can inflation be far behind? A strong dollar is bad for exporters. A weak dollar is bad for consumers. And a rising market means the next crash is closer than ever!

I think people whose acquaintance with investing consists of random bits of day to day journalism could easily conclude it's a sucker's game.

Baltassar

AAII.com publishes their sentiment survey weekly online ... the highest bearish reading of the last 12 months

CNN's sentiment indicator says the opposite, is at a very high bullish reading, topped only in Jan/Feb/Oct as you can see if you click on "Timeline":

https://edition.cnn.com/markets/fear-and-greed

Whatever you look for, on the Internet you'll find it, A and non-A.

"AAII.com publishes their sentiment survey weekly online ... the highest bearish reading of the last 12 months"

CNN's sentiment indicator says the opposite, is at a very high bullish reading, topped only in Jan/Feb/Oct as you can see if you click on "Timeline":

https://edition.cnn.com/markets/fear-and-greed

Whatever you look for, on the Internet you'll find it...


Yeah, I was surprised to see AAII's sentiment survey not showing a more bullish take from their participants. It's just one signal among many, but I think it's a somewhat useful indicator, as it's been published for many years, the history is there to see, and it's updated weekly.

The CNN Fear/Greed index hardly shows a blow-off top occurring at the moment either. It's moderately high, but not pushing into extreme greed, and it's been significantly higher many times in the last year. Here's a little longer chart of the Fear/Greed index: https://en.macromicro.me/charts/50108/cnn-fear-and...

I'll also note that the Conference Board survey shown in the Axios article, with it's all-time high optimism about stock prices for the coming year, was showing results from the October survey, before the Trump win fueled the market rally. Results for sentiment the week of November 13th from AAII reflect that burst of optimism: 49.8% bullish, only 28.3% bearish.

I’m not surprised. When the market is going up people think it will go up. When the market is going down they think it will go down. The sentiment always lags reality, sometimes by weeks, occasionally by years.

I dare say the sentiment in 1999 was that the market would go up, in 2008 that the market would go up, and in 2001 and 2009 that the market would go down. Just a guess, since it’s Sunday morning and I’m too lazy to look anything up.

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