By Spencer Jakab
March 17, 2025
Juuuust a bit outside.
Back during the summer of 1999, brokerage Paine Webber teamed up with Gallup to survey American savers about what they expected from the stock market over the coming decade. Those with five years or less investing experience, which meant quite a few people during that heady time, predicted annual returns of 22.6%. The actual return through 2009 was negative.
Traders cheering on the floor of the New York Stock Exchange in March 1999 as the Dow Jones Industrial Average hit the 10,000 point mark. Photo: STAN HONDA/AFP/Getty Images
Percentages don’t do justice to how absurdly optimistic investors were. Compounded at that pace, each dollar would have grown to more than $150 by now. If money could reliably multiply so quickly, then high-school graduates could put $600 saved from their summer job into a tax-deferred account and never save another penny, since they would have $10 million on retirement day.
The upshot isn’t that investors whiffed so badly but that their assuredness was a signal of lousy future returns. Usually portrayed as a good thing for the economy and investors, confidence is actually one of the best inverse indicators.
It isn’t just newbies either. Research from the Leuthold Group looked at one of the longest-running sentiment surveys, the Investors Intelligence poll of investment newsletter writers. The S&P 500’s return following the 10 worst years for investor sentiment, as represented by the average bull-bear spread, was followed by an average return of 18.9%. In other words, low confidence is an indicator of high return potential.
Last year was one of the 10 highest years for sentiment—in third place overall. Average returns for the year following the other nine instances were an anemic 0.4%, and 2025 isn’t starting out so hot either.
Was last year even in the same ballpark as 1999 or other exuberant periods, though?
“The pushback we got from readers was that the psychology wasn’t the same,” says Doug Ramsey, Leuthold’s chief investment officer, but it ticked their boxes for a bubble.
Paine Webber only lasted another year as an independent company after that fateful prediction, and the same individual investor poll hasn’t been continued. But Vanguard Group reported in January that investor sentiment was the highest ever in its shorter-running survey. And, while Gallup no longer asks about return expectations, its survey released on Feb. 3 showed the most optimism ever about the stock market in its history.
No wonder: The last 15 years have been the strongest such period ever for S&P 500 returns.
It is also instructive which markets are most-loved—a clue that would have been profitable this year. In January, Goldman Sachs surveyed clients at its Global Strategy Conference. In the eight years of results the firm published, the share expecting the U.S. to be the world’s best-performing region for stocks was the highest ever. Right on cue, an index of non-U.S. developed-market stocks has beaten the S&P 500 by almost 15 percentage points year-to-date.
By contrast, less than a third the proportion of clients had the same confidence in the U.S. as a top investing destination in January 2023, when recession talk was swirling. Over the subsequent two years the U.S. beat that index of developed countries by a whopping 36 percentage points.
When it comes to the stock market, measuring confidence is like looking at the rearview mirror. Stare too hard and you’re liable to run into a pothole, or worse.
Write to Spencer Jakab at Spencer.Jakab@wsj.com
This Wall Street Journal article was legally licensed by AdvisorStream.
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