29 April 2019
Bob Cunneen, Senior Economist and Portfolio Specialist
US Shares vs Sentiment
Source: Federal Reserve Bank of St Louis and Reuters Datastream.
Wall Street is within sight of the summit again. The benchmark S&P 500 Index (blue line) is approaching the record high of 2930.75 set in September 2018. This extraordinary revival follows a dismal performance in the final quarter of 2018 when the US share market fell by nearly 14%.
A range of positive factors has provided the new oxygen supply for this rapid ascent in 2019. The US central bank has declared that interest rates are on hold given ‘muted inflation pressures’. There appears to be progress in the US – China trade negotiations. The Chinese economy even shows signs of stabilisation after concerns that economic activity was slowing and credit conditions were tight. Even the Brexit debacle has been delayed with Britain getting another time extension on their exit from the European Union.
Investor sentiment has also calmed down over the past six months. Investor surveys and market positioning measures shows optimism on US shares. However sentiment is not as elevated as the previous peak in September 2018. Yet caution is still warranted. This sentiment gauge* (red line) remains at the equivalent high levels to the previous share market peaks in 2000 and 2007. As all mountain climbers know, the higher the altitude means the thinner the air. So the next few steps higher for the US share market will need to be taken more carefully and more slowly.
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