Another good figure

Quite often, a figure is worth a thousand words, and I came across a relevant graph again.

Earlier, I wrote about that different satisfaction and expectation surveys are excellent indicators of the status of the economy and the prospects of the capital market. The first figure (below) presents the ‘regular’ US Michigan Sentiment Survey results, which show how people see their own situation and what their expectations are. The rule is rather simple: when people are scared and worried about their future, it usually means that a significant economic low-point is close, so it is better we bought shares. If in the past 50 years, we had bought shares every time when the expectation index reached a value of 55-60, then our purchases would have been made around every major stock exchange low-points: 1974, 1981, 1991, 2009, and 2012.

The index has a component that has been studied for ‘only’ 15 years; it more precisely examines retail share market expectations: it shows what percentage of retail investors anticipates increase in share prices within a year. When it is high, it means that the majority has bought what they wanted and the peak is close; when it is low, then the low-point is nigh. This is our second and more important figure.

Similarly to the stock exchange price hikes in the 2000s, attitudes have been quite positive lately, and we are also over the ‘test’ when, for a while, we could be a bit scared (the summer of 2006 back then, and now the end of 2015 and the beginning of 2016) but then everything can return to the usual. Trust has grown so much, that since the beginning of the survey, there have NEVER been so many optimists in America than now. This is a crucial long-term indicator. It does not mean anything within a couple of weeks period, but it shows the same I wrote about earlier: we are at the end of the second half of the stock exchange match, and the referee might add some minutes of extra time but it really seems like that the bull could hit the wall in 2018-2019…

US Michigan Sentiment Survey – all charts

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Original date of Hungarian publication: October 19, 2017