Warren Buffett’s famous quote “Be fearful when others are greedy, be greedy when others are fearful,” seems to be applicable to today’s stock market environment. With the US stock market recently setting new all-time highs, confidence in the market has reached a peak not seen since 2005. This strong sentiment may be reaching a point of “irrational exuberance.”
History shows that a contrarian outcome is often the result of an extraordinarily high level of faith that the market will continue to improve. A look back on previous market corrections shows that confidence generally peaks just prior to the downturn. Given the current political, economic and global uncertainty, it seems that circumstances may be ripe for a correction later in 2017.
Any attempt to foresee the direction of a market should be taken with a grain of salt. There are strong arguments to suggest the stock market will continue its climb higher well past 2018. The level of confidence however, is a concern.