The S&P 500 rose 1.5 percent last week to end at another record high.
Indeed, a Bloomberg report early in the week had noted: “Investors haven’t been this optimistic on the global economy since 2011.” It cited a survey from Bank of America Merrill Lynch that showed that 23 percent of investors expect an outright “boom” while the number predicting negligible growth over the next 12 months has fallen by more than half to 43 percent.
“Macro optimism is surging,” wrote the team.
However, in his latest article today, John Hussman reminds us: “It’s precisely when economic optimism is strongest, when caution is seen as misguided, and when bullish enthusiasm is most exuberant, that the stock market reaches its speculative apex and becomes most vulnerable to collapse.”
Hussman added that with the degree of overvaluation in the market, a mere retreat to historical levels would mean a market loss of 60 percent.
Robert Naess, portfolio manager at Nordea Bank, is similarly cautious.
“There’s too much optimism,” he said in an interview with Bloomberg last week.
Naess said that companies missing earnings growth estimates pose the biggest risk to stock markets.
Naess also said that investors are putting “too little weight” on potential risks from US President Donald Trump's policies. “There’s more risk now than before.”