Investor Complacency Back At Pre Market Crash Levels

The Fed’s equity market related uncertainty index has returned to the low levels last seen in January 2020, previous to the Coronavirus induced stock market crash and recession.

The Fed calculates this measure of investor sentiment by looking at newspaper stories mentioning the economy, stock markets, and uncertainty specifically.

The high level of investor optimism inferred by the low reading of the uncertainty index is supported by levels of the VIX, equity put/call ratio, and a host of other sentiment measures that suggest extreme investor complacency.

The current extreme of investor optimism is the result of a consensus view that expects a sharp “V” shaped economic recovery with no complications presented by the virus or its variants.

We are inclined to always question consensus opinions, especially so in richly priced markets such as we have today. Caveat emptor.

Risks abound, but so do great opportunities in the years ahead.

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