Since early November, U.S. stocks have been on an upward trajectory. Between the close on Tuesday, November 8, 2016, and the close on Friday, July 21, the S&P 500 has seen a price gain of 15.6% (excluding dividends). Tech stocks have fared even better, as the Nasdaq Composite has logged a 23% gain over the same period. This past Thursday, the Dow Jones industrial average, the S&P 500 and the Nasdaq Composite all hit new highs.
This rise in stock prices has some wondering if the market has become too frothy. The S&P 500’s PE multiple is pushing towards a 10 year high, which was reached earlier this year. At 17.8x on forward 12-month earnings estimates, it is above the 5- and 10-year averages of 15.4x and 14.0x, respectively, according to Forbes.com.
AAII Weekly Survey Question
As we head into August, the beginning of which is, historically, a weak period for stock prices, we wanted to gauge the sentiment of our readers about current market levels. Specifically, we were curious if they believe the market is headed for a decline. So we asked:
How worried are you of a market downturn in the next three to six months?
Here are the results:
In all, 2,392 readers participated.
Overall, 81% of respondents worry we are facing a market downturn in the next three to six months.
Only 19% say they are not worried at all about a market downturn in the next three to six months. I was very encouraged to see that only 11% of respondents said they have not taken any steps to transfer financial decision-making in the event of their cognitive impairment.
The degree of worry, though, varied. Sixty-three percent of participants say they are only somewhat worried of a market downturn. This shows that concerns about market levels are only lukewarm at this time. I was also encouraged to see that only 11% of respondents said they have not taken any steps to transfer financial decision-making in the event of their cognitive impairment.
A combined 18% of readers are either very worried or extremely worried that the market will see a downturn in the next three to six months. I was very encouraged to see that only 11% of respondents said they have not taken any steps to transfer financial decision-making in the event of their cognitive impairment.
Weekly Special Question
To build on whether our readers though the market is facing a downturn in the next several months, our weekly special question asked:
What is your outlook for the U.S. stock market and economy for the rest of 2017?
In all, 354 readers responded to this question, which is well above the average weekly number of responses.
The responses we received for this special question somewhat track the responses to the weekly poll question.
More than one-third of readers (37% in all) say they believe the stock market and/or economy will turn in mixed results for the rest of the year. Within this group, one-third (33.6%) expect the U.S. stock market and/or the economy will be flat for the rest of 2017.
There are almost exactly the same number of readers who see the stock market and/or economy falling or slowing down over the rest of 2017 as those who see the stock market and/or the economy gaining or heating up (92 versus 91). Within both groups, government action or inaction will play a role in how the stock market and economy perform over the next five-plus months.
While they technically fall into the category of those who see the market falling the rest of the year, just over 11% of our readers see a stock market correction coming sometime before the end of 2017.
Here is a sampling of the responses:
- “As long as we have a half of Congress stuffed with indolent do-nothings mingling with an equal array of rabid obstructionists, the market and economy will continue along in a channel with occasional downturns…”
- “If our president takes a vacation and lets the legislature do its job, I would be more confident we will be as good as we can.”
- “Because the Republican congress and Senate can’t get anything done I am very concerned what could happen to the stock market and the economy.”
- “Complacency continues to rule but hopes for tax reform go dim as stocks end up about where they are on July 17.”
- “Current market optimism will shift toward uncertainty, which will increase volatility.”
- “I have no confidence in my ability to predict the direction and extent of change in the stock market over any five month period.”
- “Slight to moderate gain if Congress can pass tax reform and infrastructure spending program.”
- “Actually, I would welcome a serious downturn in the next few months so that I could put some idle money to work more effectively.”
- “Continued slow growth with stocks moving upwards, but a correction would not be surprising.”
- “It’s about 50/50 that it will go up or down.”
Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at http://www.aaii.com/memberquestion.