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Investor Sentiment Turns Euphoric over Stock Market Outlook: Watch Out!

Investor Sentiment Turns Euphoric over Stock Market Outlook: Watch Out!  We use investor sentiment as contrarian indicators for the direction of the stock market. The Citigroup Panic/Euphoria Model of investor sentiment is yet another indicator that is warning the stock market is in dangerous territory (see chart).  The level of investor euphoria recently has been at its highest level in many years. Why is this important now?  This excessive euphoria comes at a time when many investors appear to be ignoring market indicators and bleak economic news signaling the stock market is seriously overbought, particularly after its recent  big surge since March’s low. So, what’s propelling investor to thrown caution to the wind? It’s known as FOMO. That means individual and many professional investors are operating on emotion despite all the warnings because of Fear Of Missing Out. Citigroup strategists explain: “We are concerned that thoughtful approaches are being overwhelmed by the need to at least keep pace with price moves. People are ignoring joblessness, trade friction, social unrest and risks that loom, including Covid-19 reinfection, the end of the bonus supplemental checks and the upcoming election.”

Investor Sentiment Turns Euphoric over Stock Market Outlook: Watch Out!
Investor Sentiment Turns Euphoric over Stock Market Outlook: Watch Out!

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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