"We see a lot more certainty for 2014. With the unemployment rate falling, the Fed's action last week and the government budget agreement, all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast."
- Christine Lagarde, IMF Managing Director
While analysts are trying to assess a potential effect of the stimulus programme on the world's largest economy and some sceptics expressing their concerns over whether QE was need or not at all, stock markets are displaying very bright images for the United States. The latest survey from the AAII showed optimism amid individual investors soared to a three-year high, while pessimism remained around a two-year low. The results coincided with the Federal Reserve decision to start tapering its monthly purchases. Moreover, the bullish sentiment– a percentage of respondents expecting stock prices to rise over the next six months, jumped by 7.6% to 55.1%, hitting the highest since January 2011. The figures is also highly above the historical average of 39.0%. While results are more than optimistic, they are more than one standard deviation above the usual positive sentiment and one deviation below historical average of bearish sentiment. Even though it can be interpreted as an alarming sign for investors, short-term perspectives are too optimistic.
The last time when investors were strongly bullish, the S&P 500 and Dow Jones were around 40% below the current levels. More and more market participants are getting encouraged by stocks at record high levels, as well as earnings growth and economic prosperity.
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