Monday, October 23, 2017

Mixed Signals on Investor Confidence

Stock market participants' confidence is reaching historic highs, according to data from the University of Michigan consumer sentiment report, which asks about the probability of an increase in stock prices over the coming year. Currently, about 65 percent of respondents see such an increase in the offing, arguably the best reading in the survey's history.

It isn’t just retail investors feeling good about the market. According to the Bank of America-Merrill Lynch fund manager survey, the average cash balance in portfolios has fallen to 4.7 percent, the lowest level since May 2015.

The Michigan survey can be read as something of a contrarian indicator, however, since the previous record high came in early 2016, shortly before the market’s most recent pronounced pullback. The lowest-ever reading recorded by the survey—which goes back to 2002—occurred in 2009, around the financial crisis bottom, which marked the start of an uptrend that is still ongoing.

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