The Yale School of Management conducts a number of sentiment surveys each month on individual and institutional investors. One of the surveys asks, "How confident are you that there will be NO stock market crash in the next six months?" Based on the results of the survey, the Crash Confidence Index is the percentage of respondents who think that the probability of a crash is less than 10%. As shown below, the Crash Confidence Index peaked at about the same level for institutional investors in April 2006 and February 2007. The Index peaked for individual investors in April 2006. As the market got worse and worse in 2008, less and less investors thought that a crash was unlikely. At the bottom of the market in early 2009 (after the market essentially did crash), the Crash Confidence Index hit its lowest levels for both institutional and individual investors, meaning that hardly anyone thought the likelihood of a crash was less than 10%.
The Crash Confidence Index is currently around 30% for both individual and institutional investors. As shown in the chart, this is not indicative of complacency at all, as it is well below the peak readings seen during the last bull market. While some sentiment indicators show a lot more bulls than bears right now, this one shows that a lot of investors are still worried about an imminent market decline, which in our view means the market is still climbing a wall of worry.
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