The preliminary September reading of The Euphoriameter showed a rebound from August to a fresh new 13-year high. All 3 components contributed to the rise, with low volatility (the VIX) the biggest driver, followed closely by valuation (forward PE ratios), and bullish surveyed sentiment (the AAII and II surveys). Looking at the mechanics of the calculations, unless something drastic happens in the interim, next month’s reading is likely to move to the highest level since the dot com boom as a couple of negative readings roll off from the smoothing function. But anyway, long story short: sentiment is running high as the market moves on to new highs, and it is rapidly approaching similar conditions to the late 1990’s.
The other chart in today’s post is the State Street Investor Confidence Index (SSICI) for North America. This metric uses State Street’s gargantuan global custodian business to track the activity of institutional investors. Readings above 100 indicate increasing allocations to equities. The NorthAm index dropped to 105.6 in September (111.9 in Aug), which shows North American institutional investors are still on the whole bullish on equities, but increasingly less so.
I’ve used the term “reluctant bulls” before to describe the phenomenon of just going with the market despite the uncomfortable features of apparently complacent levels of the VIX and increasingly higher valuations. While it’s hard to pick a market top, the challenges faced by investors are evident now more than ever, and good research and a sound process should be the key priority for the intelligent investor.
The Euphoriameter has moved on from the dip in August to reach new 13-year highs, and a new post-2009 high. This multi-faceted view of sentiment shows conditions are fast becoming similar to the late-90’s.
Institutional investors continue to look like “reluctant bulls” as a number of discomforting signals bump up against solid momentum and a seemingly persistent uptrend in the market.
For more and deeper insights on global economics and asset allocation, and some more good charts you may want to subscribe to the Weekly Macro Themes. Click through for free look or a trial.
Follow us on:
Article by Callum Thomas, Top Down Charts