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One statistic says stock rally is tapped out

By one measure, consumers are as bullish on the U.S. stock market as they ever have been. But that might be a bad thing.

Buried in the September University of Michigan consumer sentiment survey released last week was a statistic showing 65% of people surveyed believe stock prices will go up in the next year.

The 65% response is newsworthy because it’s the highest level on record, David Rosenberg, chief strategist at Gluskin Sheff, a Candian-based asset management firm, noted in a report. It also tops the prior peak in the current bull market, when 63.1% of folks surveyed in June 2015 thought stocks would go up in the next 12 months. It also bests the 62.2% in July 2007, a few months before the end of the last bull market.

“It reveals just how much good news is priced in” to the market, Rosenberg says. What’s more, he highlights historical market data that show “peak confidence like this and peak market pricing tend to coincide with each other.”

Data show returns for the Standard & Poor’s 500 stock index are weak or down when 60% or more of consumers think stocks will rise in the next year. The index was flat (up 1%) six months later and down nearly 3% a year later. In contrast, when there’s “nothing but bad news” and less than 40% of consumers believe stocks will rise in the next year, stocks were up 16% six months later, 30% a year later.

The takeaway: The nearly 9year-old bull might be in danger of stalling out.