Pessimism is a Coincident Indicator

Jan 2019

… investor pessimism is not a predictive factor. It tells us much more about the present than the future.  (In economics-speak, pessimism is a “coincident” indicator, not a “leading” one.) Indeed, extreme pessimism is arguably inversely correlated with future stock market returns.  [And] it’s not just individual investors who tend to be optimistic near stock market highs and pessimistic near the lows. Wall Street has its own emotional problems. According to a report by Barron’s, in 2018 the least popular 100 of the S&P 500 companies (based on Wall Street analysts’ recommendations) significantly outper­formed the 100 most popular companies.