It’s a bad sign when investors believe the probability of a crash is particularly low — like now

 The U.S. stock market is likely to be a below-average performer over the next 24 months, according to an obscure sentiment index — as are 25 high-flying, popular U.S. stocks including Nvidia, Super Micro Computer and Broadcom

The market indicator, known as the “U.S. Crash Confidence Index,” was created 40 years ago by Yale University’s Robert Shiller and is now maintained by the Yale School of Management. 

2013 tilldelades Robert  Shiller Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne tillsammans med Lars Peter Hansen och Eugene Fama för "deras empiriska analys av tillgångspriser". Wikipedia.

The role of emotions in the U.S. Crash Confidence Index has been documented in a new study by Shiller, Yale professor William Goetzmann, and Dasol Kim of the U.S. Treasury Department’s Office of Financial Research. 

Entitled “Emotions and Subjective Crash Beliefs,” the study began circulating in June in academic circles.

The contrarian indicator based on the Crash Confidence Index is not itself forecasting that a crash will occur, but simply that the next two years will experience below-average returns. 

The index reflects investors’ emotions and subjective beliefs, which are far different than the objective factors that have a statistically significant ability to forecast a heightened probability of a crash. 

As I discussed in a recent column, https://www.marketwatch.com/story/nvidias-rebound-from-its-correction-only-makes-the-stock-more-dangerous-to-buy-c3e62a3c?mod=article_inline a recent study of those objective factors implies that the odds of a market-wide crash are below average right now.

Mark Hulbert MarketWatch 22 July 2024

https://www.marketwatch.com/story/nvidia-super-micro-broadcom-and-22-other-stocks-most-likely-to-crash-737a3b40

The psychology of a stock market bubble

Mark Hulbert MarketWatch 21 April 2021

https://englundmacro.blogspot.com/2021/04/the-psychology-of-stock-market-bubble.html

The Magnificent Seven Panic Is Over and We Survived

Investors were worried that this year’s market rally was fueled by a small handful of stocks. That’s changed suddenly — and without much drama.

Is this a sign of a healthier market, as the breadth truthers would have us believe? Who knows? 

But the simple fact is that the typical investor holds the cap-weighted version of the S&P 500, which has basically moved sideways for eight days or so.

In the past decade, six stocks have accounted for 45% of the S&P 500’s increase, and the index has outperformed its equal-weighted equivalent by 69 percentage points.

Jonathan Levin Bloomberg 22 juli 2024 

https://www.bloomberg.com/opinion/articles/2024-07-22/the-magnificent-seven-panic-is-over-and-we-survived

 1929 202? The trend is your friend. And then the trend is not your friend. Updated.

https://englundmacro.blogspot.com/2024/07/1929-202-trend-is-your-friend-and-then.html