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Consumer sentiment is at a 14-year high, small-business optimism is at its second-highest level ever
Even with the sudden prospect of a trade war, it's hard to find a bear on Wall Street .
While caution and volatility have returned to markets over the past six weeks -- a period marked by concerns over inflation, tariffs, and the first correction for the Dow and S&P 500 in two years -- those issues don't seem to have soured investors on the market, based on a variety of metrics that measure sentiment and optimism.
The latest data on consumer sentiment hit a 14-year high in March (http://www.marketwatch.com/story/consumer-sentiment-hits-14-year-high-as-low-income-households-report-better-conditions-2018-03-16), coming in above expectations and continuing a lengthy uptrend for the datapoint. At 102, it is well above the long-term average of 86, according to data from Goldman Sachs .
The good vibes haven't just been isolated to consumers. A reading on small-business optimism hit its second-highest level ever in February (http://www.marketwatch.com/story/surging-small-business-sentiment-closes-in-on-reagan-era-record-2018-03-13), behind only to a reading from 1983 and extending a surge that started with the 2016 U.S. presidential election.
Separately, the CEO Business Confidence Survey has been similarly strong, coming in around 65, well above the level of 50 that indicates positive confidence.
This rise in positive views has coincided with a drop in negative ones.
According to the AAII Investor Sentiment Survey , just 21.3% of polled investors describe themselves as bearish, meaning they expect prices to be lower in six months. This is the second-lowest level of the year, and significantly below the historical average of 30.5%. It has been below that average in 13 of the past 14 readings. Compared with last week, the ratio of bears fell 7.1 percentage points.
The current level of pessimism is only slightly above 20.7%, or what AAII sees as "the breakpoint between typical and unusually low readings."
Over the past week, the Dow Jones Industrial Average has dropped 1.8%, the Nasdaq Composite Index has dropped 1.1% -- though it has recently traded at all-time highs -- and the S&P 500 is down 1.4%. The S&P is coming off a four-day losing streak, its longest such stretch since December.
Read:The stock-market correction may be only half over, if history is any guide (http://www.marketwatch.com/story/the-stock-market-correction-may-be-only-half-over-if-history-is-any-guide-2018-03-15)
High levels of optimism are sometimes seen as a warning sign for stocks (http://www.marketwatch.com/story/investors-should-be-pessimistic-about-the-rise-in-stock-market-optimism-2018-01-09), as they can imply complacency or even euphoria, but the low levels of pessimism don't necessarily translate to investor enthusiasm. The percentage of respondents in the survey who described themselves as bullish came in at 36.8%. While this represents a big jump from the previous survey -- an increase of 10.4 percentage points, up from its lowest level since August -- it remains below the long-term average of 38.5%. Earlier this year, it spiked to 59.8%, a seven-year high (http://www.marketwatch.com/story/bullish-sentiment-for-us-stocks-is-at-a-seven-year-high-2018-01-05).
As has recently been the trend, a plurality of investors -- 41.8% -- were neutral on the market, or expecting prices to remain roughly unchanged over the coming six months. This is down 3.4 percentage points from the previous week, but above the 31% average. This is the first time neutral sentiment has been above 40% for two straight weeks since a period ended in July.
Many analysts have essentially endorsed a neutral view on equities, which have been trading in a fairly narrow range for weeks. Morgan Stanley , in a Monday note to clients (http://www.marketwatch.com/story/stock-market-showing-internal-signs-of-strength-2018-03-12), speculated that the high hit in January and the low reached in February "about established the high and low end of valuations for U.S. equity markets" for the rest of the year. It sees both positive and negative catalysts that could drive trading over the coming months, including tighter Federal Reserve policy and trade tensions on the downside, and ongoing economic strength and corporate profitability on the upside.
Read also: This political-risk gauge just hit a 15-year high. Here's what it means for the stock market (http://www.marketwatch.com/story/this-political-risk-gauge-just-hit-a-15-year-high-heres-what-it-means-for-the-stock-market-2018-03-16)