Yale Index Shows Declining Valuation Confidence

Includes: IVV, SPY
by: Bespoke Investment Group

We recently came across the Yale School of Management Stock Market Confidence Indexes via The Kirk Report and found the information intriguing.  One of the more interesting indices was the Valuation Confidence survey of Institutions.  The index is a survey of institutions on their confidence in the valuation of the stock market.  We plotted the survey in the chart below and compared it to the S&P 500 historically. 

As shown, valuation confidence reached record lows in April 2000 -- just when the market peaked.  It reached record highs in January 2003 -- very close to the bear market bottom.  Based on those two peaks and troughs, the index seems to work pretty well. 

Interestingly, confidence in the valuation of the market made another peak in January 2007.  This time the market was making new highs instead of new lows, meaning institutions still viewed valuations as attractive -- completely different than the views from institutions at the highs made in 2000.  Since January 2007, valuation confidence has been declining, however.  It is currently at levels similar to those seen in 2004 and 2005.

Click here to view this index and the other indices provided by the Yale School of Management.