EWI likens the current mood on Wall Street to that which existed in January 1973, when all the panellists in the Barron's magazine annual forum were optimistic about the outlook for equities, leading to the now-infamous headline 'Not a bear among them'. In the following 11 months or so, the Dow Jones index shed 45 per cent of its value. Our own FTSE All-Share index tumbled 58 per cent (you can read EWI's analysis here: http://bit.ly/Sc7cCV).
The Dow's 70s shocker
At the root of EWI's comparison is a recent Bloomberg straw poll of five big banks, including Goldman Sachs, all of whose pundits are calling for new record highs in the S&P 500 index in 2013. "Market history offers us a clear lesson: Beware of the consensus." I appreciate EWI's logic here. Going against consensus opinion can be a profitable tactic. A bullish consensus is often followed by a bearish outcome.
The All-Share had it worse
Unlike EWI, however, I really don't feel that there is an unhealthy amount of bullishness around right now. And, while something like the results of that Bloomberg poll can give us an insight into today's mindset, I think we can do better, especially when making comparisons over time. The source I'd most likely turn to here would be the Investors Intelligence Advisors Sentiment report.
Sentiment on Wall Street then
As far as I know, the II report is the oldest of its kind, going back to the 1960s. Every week, it summarises the latest views expressed by US investment newsletter firms, including EWI. It divides opinion into three camps: bullish, bearish and 'correction'. The resulting data are specifically meant to have a contrarian interpretation: when the world and his mum are bullish or bearish, it's a warning that the opposite may occur.
The publication of this week's results was delayed by the hurricane that battered the northeastern coast of the US. However, last week's survey showed that 41.5 per cent of newsletter writers surveyed were bulls and 27.7 per cent were bears, making a gap of 13.8 per cent. Generally speaking, a gap of 30 per cent or more in favour of the bulls would be considered worrisome.
So, how does today's reading of 13.8 per cent compare with that at the start of 1973, when equities were about to take a bath? Just a couple of weeks before that famous Barron's headline, there was a whopping 58.3 per cent gap between bulls and bears. Only very rarely has the reading gone higher than that. Clearly, though, there is no comparison between the exuberance of late 1972 and now. Newsletter pundits today are modestly bullish and that's about it.
Sentiment now
Of course, by dismissing the risks of another imminent bear market, I could be having a Michael Fish moment. In October 1987, the former BBC weatherman pooh-poohed the notion that a terrible storm might be heading for Britain. It's a nice comparison, especially since the subsequent tempest was accompanied by a stock market crash. So, I'll don a hideous check jacket and publicly reiterate my forecast that the S&P is heading to above 1500 and the Dow above 14000. And I see no sign of a crash coming.
