Ripening Sentiment Toward U.S. Stocks Fails to Ring Sell Alarms

  • Conference Board confidence measure highest since January 2004
  • S&P 500 has historically rallied following similar peaks

What's the Big Story for Equities in 2017?

One measure of U.S. equity sentiment just had its biggest jump since 2009. Does that imply a euphoric moment that puts the bull market on death watch? History suggests not.

A Conference Board index tracking Americans who expect shares to rise surged 45 percent in December, data showed Tuesday. While that was the highest reading in more than a decade, similarly elevated levels haven’t been reliable sell signals. Six times the survey was higher since 1997, the S&P 500 Index rose in the next 12 months by an average of 2 percent, Bloomberg data show.

Surging confidence is a double-edged sword. Exuberant investors are buyers, with the potential to exhaust themselves. December’s bullishness followed the election of Donald Trump and coincided the biggest rally ever to greet a new president. It also came with valuations near decade highs amid the second-longest bull market on record.

Here are some statistics that might suggest stocks have further to run:

  • Wall Street forecasts a median S&P 500 gain of 3.5% to 2,340 by the end of 2017, according to a survey of 15 strategists
  • Companies in S&P 500 expected to increase earnings by 12% in 2017, which would be the biggest full-year profit expansion since 2010: Bloomberg data
  • Premium being paid to protect against 10% loss in SPDR S&P 500 ETF in next 6 months close to lowest since July 2014 relative bets on 10% gain: Bloomberg data
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