Stocks have risen so often in the last five years that many investors may take further gains for granted even after the latest slump, according to Wells Frago's Jim Paulsen. As Bloomberg reports, Paulsen's 'US stock market consistency indicator' (which tracks the ratio of monthly gains and losses for the preceding five years), reached 3 for the first time since April 1999 - less than a year before the end of a bull market driven by Internet stocks - a level not seen since the late 1920s. Of course, it's different this time, but as we noted earlier, the consensus bull case is unbreakable and as Paulsen notes "Consistency breeds complacency,” or a sense of comfort among investors that's at odds with potential losses.
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As Bloomberg explains,
"Consistency breeds complacency," or a sense of contentment among investors that’s at odds with potential losses, Paulsen wrote.
“While the stock market did decline aggressively earlier this month, its quick and nearly full recovery, if anything, has probably boosted complacency.”
Complacency earlier this year reached levels seen in the 1990s, the 1950s and the 1920s, according to Paulsen, based in Minneapolis. His conclusion was derived from an indicator that combined the consistency gauge with a stock-volatility index, also tied to Shiller’s data.
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