The equity market in four charts

Retail investors are now the most bullish since early November 2021 which was around the peak in the equity market. The rate of change has been quite dramatic and has gone hand in hand with equities rallying since early October of last year. But with big moves and elevated sentiment comes a higher risk of a reversal in the market.

Another way of expressing investor confidence is to look at the percentage of S&P 500 companies that are trading above their 200-day moving average. As of last week that number reached 73.5% which is the highest since December 2021 expressing the same level of risk sentiment as the bull-bear spread. This level is not quite in the exhaustion area which typically kicks in above 80%, so this indicator could suggest that there is room for more gains in equities.

Economists are confused these days because the US leading indicators are suggesting that the US economy should slow down and slip into a recession, but instead more indicators are beginning to suggest that instead of a soft landing the economic plane is instead taking off again. US total loans and leases on the balance sheet of commercial banks are increasing at a faster rate than during the years leading up to the Great Financial Crisis indicating that the US economy is actually experiencing a credit boom. Higher credit growth on top of higher rates is the perfect fuel for the engine that powers banking earnings and thus the global banking index is fast approaching its all-time high.