Investors Showing Extreme Optimism: Will They Get Burned?

Includes: DVY, QQQ, SPY
by: Jonathan Liss

Excerpt from our One-Page Annotated News Summary:

Profit Reports May Show U.S. Stock Investors Underestimate Risk (Bloomberg)

Summary: According to Ned Davis Research investors have reached a level of 'extreme' optimism. The firm's optimism gauge showed a reading of 65.5; above 61.5 is considered an extreme reading. In addition, the CBOE's SPX Volatility Index, or VIX, closed the week at 11.56, well below its five-year average of 18.85, demonstrating the market's current lack of concern for volatility. According to chief investment strategist Tim Hayes, "The market is vulnerable to a pretty swift decline. Earnings are the big risk here with the economy slowing down." Still with analysts usually underestimating earnings many feel the upcoming earnings season will not be the disappointment the bears are predicting. Says Michael Cuggino, manager at Pacific Heights Asset Management, "People think the economy is going to slow to some degree, but it doesn't have to be a significant slowdown. Stock prices haven't recognized the good economic growth that's been reflected in corporate earnings."
Related links: Full articleLooking at the Yield Curve: Time to Reconsider Stock Market Exposure?Richard Berner: This Time Fading Earnings Growth is For RealU.S. Large Caps Trending Positively
Potentially impacted stocks and ETFs: iShares Dow Jones Select Dividend (NYSEARCA:DVY), NASDAQ 100 Trust Shares (QQQQ), S&P 500 Index (NYSEARCA:SPY), ProShares Short Dow30 (NYSEARCA:DOG)

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