U.S. Equity Bulls Just Say No to Contagion

U.S. investors might want to brush up on their old proverbs, especially the one about how pride goeth before a fall. Although the S&P 500 Index edged lower for a second straight day Wednesday, there’s an overwhelming sense that America’s stocks will continue to shrug off the emerging-market-induced downdraft engulfing equities in the rest of the world.

Such sentiment is seen in Investors Intelligence’s weekly survey of newsletter writers, which showed that 60 percent now consider themselves bulls. To be sure, it’s been hard to be anything but positive on U.S. stocks, especially with economic data like that released by the Institute for Supply Management Tuesday. The group said its manufacturing index for August surged to the highest since May 2004. So much for trade wars denting business confidence. But there are two things to note about the 60 percent level in the Investors Intelligence survey. The first is that the organization says it “signals elevated risk and the need for defensive measures." In other words, optimism is too high. The second is that the level is the highest since January, just before the S&P 500 tumbled 10 percent over the course of two weeks despite strong economic data. Also, those expecting a “correction” in stocks is the lowest since late January, suggesting a sharp, unexpected move lower could prove painful. A couple of prominent Wall Street firms are starting to worry that U.S. investors are too complacent to the risks facing the global economy.