Euphoria is here/"When you wake up in the morning do you care about the price of gold?"

I'm going to start with stock market sentiment, which I usually do on Thursday's after I see both the Investors Intelligence and AAII surveys, because the weekly Citi Panic/Euphoria index I see via Barron's on Saturday's has entered Euphoria and at .40 is the highest since mid January 2022 (and which spent almost the entire year in the Euphoria category in 2021 so tough to time). The importance of this survey according to Citi itself is while it is a "gauge of investor sentiment" like others, "It identifies 'Panic' and 'Euphoria' levels which are statistically driven buy and sell signals for the broader market. Historically, a reading below panic supports a better than 95% likelihood that stock prices will be higher one year later, while euphoria levels generate a better than 80% probability of stock prices being lower one year later." 

So, as markets are higher most of the time and Citi has statistical metrics that say there is "a better than 80% probability of stock prices being lower one year later" when Euphoria has been realized, we should all take note. As stated though, it was very euphoric all throughout 2021 and markets kept elevating (though the most speculative stuff peaked in February 2021) so no one can be sure of the timing of when this matters but for those of us managing other people's money and in the risk management business, we should take heed. Especially when we combine this with the more than 40 point spread in II between Bulls and Bears which rarely occurs.

Also, I keep hearing people arguing in both directions that we're seeing year 2000 bubble 2.0 and some saying not even close. At least as measured by the S&P 500 price to sales ratio, it's currently much worse now and more bubblicious though not that it means anything in the short term. It's important to point out that the bubble in the late 1990's that peaked in March 2000 was very narrowly focused as outside of tech, and some other stocks like GE and PG for example, the rest of the market was dirt cheap. Now, valuation elevation is more broad based as measured by that price to sales ratio I mentioned. I like to use this because it smooths out unsustainable profit margins that some companies sometimes have, like Nvidia which mathematically won't sustain a 77% profit margin for more than a year or two, thus I prefer a P/S ratio, not that I'm picking on Nvidia, just trying to make a point. 

As seen, the price to sales ratio is approaching the peak seen in December 2021 which was quite a year of speculation in just about everything with the meme and SPAC stock craze as we all remember with zero rates and epic QE. 

I bring up the extreme sentiment and this valuation metric to make NO call on the market right now but to raise antennas that we should all have a swivel head and eyes wide open when it comes to investing right now in terms of timing new investments, more so than usual and make decisions accordingly with a time horizon and risk profile that best fits your situation because there is little room for error right now. Can this persist? Of course. Will we have a notable shaking of the tree at some point in coming quarters, I believe most likely based on my points.  

S&P Price to Sales Ratio

A few weeks ago at his presser, Jay Powell sure sounded like a guy who was all ready to cut rates at the June meeting. Now following comments from voting members Waller and Bostic, he seemed pretty non-committal about speaking on Friday of that June time frame. "We can, and we will be, careful about this decision - because we can be. The economy is strong, we see very strong growth...That means that we don't need to be in a hurry to cut. It means we can wait and become more confident that, in fact, inflation is coming down to 2% on a sustainable basis." If I had a dollar for every time I've pointed out my opinion of the importance of the word 'sustainable.'