This is only a few lines from an informative column at the link below:
Crowd Sentiment
As regular readers know, I like the Ned Davis Research Crowd Sentiment Poll because it’s an amalgamation of about seven distinct sentiment measures—including both attitudinal and behavioral measures. As you can see in the chart (and accompanying table) below, optimism has followed the stock market higher, and is now back in the “extreme optimism” zone. In that zone historically, as you can see in the table, stocks have tended to struggle on an annualized basis.
Crowd Sentiment Inching Back to Extreme Territory
Source: Charles Schwab, Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2019© Ned Davis Research, Inc. All rights reserved.), as of July 9, 2019.
Not all sentiment measures are stretched
One of the aforementioned seven sentiment measures imbedded in the CSP is the survey conducted weekly by the American Association of Individual Investors (AAII). This is currently one of the more subdued sentiment readings—with the percentage of AAII members that are bullish no worse than about neutral, as you can see in the chart below. The yellow dots on the chart represent points when the Dow crossed round number thresholds. As you can see, Dow 25k and Dow 26k were accompanied by much higher bullishness than Dow 27k. This is a sentiment measure the bulls can continue to cheer.
AAII Bulls Less Impressed
Source: Charles Schwab, American Association of Individual Investors (AAII), Bloomberg, as of July 12, 2019.
Latest round numbers took fairly long
As reported by The Wall Street Journal, it took 216 days for the S&P 500 to move from its first cross above 2900 (last August) to its first cross above 3000 (last Friday)—which is one of the longest stretches between round numbers in quite a few years. As noted by ST, because it gets easier for the index to hurdle each round number as it climbs (the percentage change is less), it’s been rare to see a streak this long since the S&P first surpassed 600 in the mid-1990s. For what it’s worth, subsequent returns were generally better after long stretches between round numbers than shorter stretches.
Don’t fight the Fed
Another factor impacting sentiment has been monetary policy—in particular, the likelihood that the Federal Open Market Committee (FOMC) cuts the fed funds rate by 25 basis points at the end of this month. Long-time readers know that the phrase “Don’t fight the Fed” was coined by my first boss/mentor, the late-great Marty Zweig. That message has been in full force recently; leading many to conclude that we have moved from the original “Greenspan put” to the “Powell put.” That view kicked in when, in January this year, the Fed shifted from a hawkish to a dovish stance following the market rout into the December 2018 low. It’s based on the belief that the Fed has the power—and will use it—to keep the stock market in ascent.
This belief is perhaps why we have seen a sharp change in the market’s reaction to and behavior around economic data surprises. Take a look at the charts below—the left chart covers the first 16 months of the Fed’s rate tightening cycle (beginning in December 2015), and the second of which dates from March 2018 to the present. Citi’s Economic Surprise Index tracks how economic data is coming relative to expectations (it’s not a measure of the level of growth).
https://www.schwab.c...bers-us-indexes
