#MacroFriday: Sentiment among investors in US stocks is extremely high

A record-high 56.4% of consumers expect stock prices to increase in the year ahead, while only 21.3% anticipate a decline. Investors have reasons to believe the positive momentum in US equity markets could continue. The pro-business and investor-friendly President Trump inherits a Goldilocks economy characterized by solid economic growth, inflation moving toward its target, and a less restrictive monetary policy.

It is remarkable that investor optimism stands at a record-high when the S&P 500 and Nasdaq already gained respectively 27% and 31% since the beginning of the year. Equity returns in 2024 have been driven mainly by multiple expansion, more than by earnings growth. Investors appear to be certain earnings growth will follow in the next 12 months or that valuations can go even higher. Moreover, “America First” trades appear increasingly crowded, with large-cap valuations now in the highest percentiles. Investors must consider how much of this optimism is already priced in. One-sided positioning leaves markets vulnerable to disappointment, with little room for error.