Monday, 17 September 2018

Signs of irrational exuberance amid rising trade war risk

The S&P 500 rose 1.2 percent last week, advancing in all five days. It is now just 0.4 percent below its record close.

Mark Hulbert at MarketWatch thinks that investors are starting to show signs of irrational exuberance.

Hulbert wrote at the end of last week that his Hulbert Nasdaq Newsletter Sentiment Index (HNNSI), his most sensitive barometer of investor sentiment in the equity market, stood at 64.9 percent, having risen in recent sessions to as high as 70.1 percent. In early August, this index had stood at minus 2.7 percent.

“This represents a significant shift towards irrational exuberance,” he said.

Ironically, this comes at a time when the risk of a trade war between the US and some of its major trading partners is rising.

According to JP Morgan, an escalating trade war “could become a major drag on earnings in 2019”.

The Federal Reserve Beige Book released last week noted that trade war concerns “had prompted some businesses to scale back or postpone capital investment” while input costs for businesses have “generally been rising more rapidly than selling prices”.

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