Major market indexes are surging yet again, with both the S&P 500 (SNPINDEX: ^GSPC) and the Dow Jones Industrial Average (DJINDICES: ^DJI) hitting new record hi...
The S&P 500 hit a new record this week. The Dow did too. But the latest AAII sentiment survey shows 38% of individual investors are bearish on the next six months, versus 37% who are bullish. The gap is narrow, but the bearish edge is the first since April.
That split sits against a pair of valuation metrics flashing levels last seen before the dot-com bust. The Buffett indicator – total US market cap divided by GDP – sits at 232%, the highest on record. Warren Buffett himself said investors are "playing with fire" when it nears 200%. The Shiller CAPE ratio, which measures inflation-adjusted earnings over 10 years, is at 41, second only to its 44 peak in 2000.
Neither metric predicts a crash date. Both say the market is expensive.
Crestmont Research has a different read of the data. The firm looked at every rolling 20-year period for the S&P 500 going back to 1919. Every single one ended positive. In the 20 years through August 2006, the index returned roughly 800%. A $10,000 investment then would be worth about $88,000 today.
The catch is which stocks you own. The dot-com bust wiped out hundreds of companies; holding the index through that period worked because the survivors – Microsoft, Amazon, Apple – outweighed the dead. The same logic applies now, Crestmont's data suggests, as long as the companies in the portfolio have sustainable business models and manageable debt.
A separate AAII survey question asked members what they think the market will do in the next 12 months. The most common answer, at 31%, was "flat."
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