The ” Euphoriameter ” has hit a new post-crisis high in June, indicating increasing levels of euphoria among investors. The indicator tracks 3 gauges of sentiment: 1. Investor Surveys: the bullish sentiment readings from the AAII survey and the II survey; 2. Risk Pricing: the smoothed level of the VIX (i.e. the trend in complacency or fear); and 3. Valuation: the forward PE ratio, which reflects investor confidence in price vs future earnings. All 3 indicators are basically in agreement – which is rare.
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
That is, investors are more bullish than usual, more complacent about risk than usual, and more confident in future corporate earnings than usual. The question it raises is whether this is 'irrational exuberance' or rational exuberance. The truth is exuberance usually starts from some rational reason such as low interest rates, strong economic growth, improving earnings, expectations of stimulus, better global economy, etc. And some of these conditions certainly exist. But another way of looking at it is that expectations are increasingly high, and thus vulnerable to disappointment.