Paul Macrae Montgomery was known as the creator of a few sentiment indicators.

Basically, when the popular media news features a major event on the cover, something else will likely happen, and it’s often seen as reporting the news after the event has already happened.

Most famously, we saw this in early 2000 when Jeff Bezos was named Time Man of the Year for 1999 before AMZN fell 93 per cent as the dot com bubble burst in the following years.

This week, The Economist Magazine hints that the party is over for equities. While I’m concerned about equity market valuation to be sure, where is the money going to go if it leaves equities?

There is little doubt, we have seen an incredible increase in valuation, and some cooling is likely needed and natural after a run-up like this. But the technology-led growth of the U.S. economy is not likely to change anytime soon and the AI phase is likely in the very early innings. However, as I’ve noted in recent comments, what we should pay for that today is always the question.

The American Association of Individual Investors’ (AAII) weekly survey shows the percentage of bulls versus the percentage of bears is wide but not extreme. Historically, when the spread gets to extreme levels, forward-based returns for the next year or so tend to be flat. That’s probably true this time too, but timing it is always difficult in terms of the coming weeks. Looking out a year, the caution signs are clear. 

Expect U.S. Federal Reserve Chair Jerome Powell to push back still on rate cuts in his semi-annual testimony to U.S. Congress and to pledge the inflation fight. Also, expect U.S. Senator Elizabeth Warren to take a few shots at him for the Fed’s role in inflation. I’m looking for him to push back and tell Congress inflation is partly their fault due to their large fiscal policy.

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