Despite the improving economic data and notable rally in the stock markets, investors still aren’t completely convinced that we’ll be able to dodge a stock market crash within the next few months.
This is according to the Yale School of Management’s crash confidence index (h/t Bespoke).
We last checked in on this measure in January when it had fallen to its lowest levels since early 2009. The lower the reading, the less confidence investors have that we’ll avoid a crash in the next six months.
Since January, the index has improved for both individual and institutional investors. Yet they remain at levels seen in 2009.
However, like we mentioned in January, low readings in the crash confidence index have preceded monster bull runs in the stock markets.
Photo: Yale School of Management
Confidence that there will be no stock market crash in the succeeding six months generally declined (though with a lot of ups and downs) over the years since 1989 until the stock market bottomed out in late 2002. Just after the terrorist attacks of September 11, 2001, Crash Confidence actually rose a little. But Crash Confidence reached its lowest point at 20.79% for institutional investors and 28.95% for individual investors as of November 2002. Crash confidence reached its all-time low, both for individual and institutional investors, in early 2009, just months after the Lehman crisis, reflecting the turmoil in the credit markets and the strong depression fears generated by that event, and is plausibly related to the very low stock market valuations then. The recovery of crash confidence starting in 2009 mirrors the strong recovery in the stock market.
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