You wouldn't know it to look at the stock market though. The S&P 500 continues unabated in its' positive outlook and results, still not far off record highs in early September and seemingly disconnected from the world's troubles. So what gives?
In their online article: Sentimental Education: What Surveys Tell Us About the Bull Market, Charles Schwab takes a look at the source of the stock markets' high spirits. According to the article, surveys of investor sentiment offer a clearer and more nuanced picture of what is driving the market's performance.
We've enjoyed a bull market for the past 9 years and it show no signs of stopping though volatility may increase as well. 2017 saw a record number of highs with steady percentage gains. According to Schwab, positives include steady economic growth, low unemployment and a Federal Reserve confident enough to begin withdrawing the monetary support it brought to bear in response to the financial crisis of 2008.
Further, corporate earnings at home and abroad have delivered economic strength to investors and helped drive the market higher.
Survey Says - Investors Attitudes More Muted than their Behaviors
So how do investors feel about all this?
Surveys help differentiate what investors say they feel about market performance vs. what they actually do. According to Ned Davis Research's Crowd Sentiment Poll, while headline numbers show extreme optimism, sub components show that attitudes among certain segments of the population (think investment newsletter writers and individual investors), are actually less optimistic than they were at the start of year.
"(This) appears to be related to the storm of uncertainty swirling around," says Schwab Chief Investment Strategist Liz Ann Sonders.
And still, and despite this lack of optimism, their behavior hasn't changed. Fed data shows that household stock holdings are now at their 2nd highest point on record, while a survey by the National Association of Active Investment Managers found that professional money managers too are heavily invested in stocks right now.
Liz Ann Sonders also keeps a close eye on SentimenTrader's 'Smart Money' and 'Dumb Money' Confidence indexes, to understand what 'good' market timers are doing with their money compared to 'bad' market timers. Apparently the two groups are moving in opposite directions, the former becoming more pessimistic and the latter chasing stocks higher and getting more optimistic.
"We're not at extremes yet, but the situation is worth watching," says Sonders. "All things considered, low volatility and the elevated equity exposure we saw from the behavioral measures suggest the market may be a bit too complacent.'
The upshot of all this may appear to present a bit of a conundrum i.e. while economic fundamentals look favorable overall and the market fairly upbeat, it's worth wondering how long the positivity can last. At CAIM, we recommend investors continue to take the long view, keeping a diversified portfolio and frequently reviewing your short term needs for cash.