Given the market turmoil of this past week, investors might find solace in this item. Nobel prize-winning Yale University Finance Professor Dr. Robert Shiller reports that most investors now expect the U.S. stock market to crash like it did in 1929 or 1987. Why is that good news? Because “most investors” are usually wrong at critical turning points. He has documented that extremes in investor sentiment are actually pretty reliable contrarian indicators. In September, Shiller’s U.S. Crash Confidence Index remained near a record low of 15% (meaning 85% of respondents believe that the probability of an impending crash to be greater than 10%). The last time readings were so extreme was in the depths of the 2008-2009 bear market, before the record-breaking ten year bull market kicked off. However, Shiller cautions that most extremes in bearish sentiments are also accompanied by low market valuations, and that is not the case this time as valuations remain high.
U.S. Crash Confidence Index
| November 02, 2020