Chart of the week: Investor sentiment near a multiyear high

  • Investor optimism in the U.S. hit a 17-year high during the third quarter of 2017, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index.17 The National Federation of Independent Businesses August 2017 Small Business Optimism Index reflected similar enthusiasm, moving up slightly in August from July and flirting once again with its approximately 12-year high, reached in January 2017.18
  • Both indexes appear to reflect the strong equity performances we have seen this year – the S&P 500 Index reached another record high on Wednesday.1 Volatility measures also retreated this week, with the CBOE Volatility Index receding back to approximately 10, where it has generally resided since May 2017.5
  • It is important to remember, however, that sentiment indexes typically reflect current, or recent, market activity more so than what investors might expect in the coming year or years.
  • To this end, it appears that some of the drivers that helped push market returns in recent years may no longer be as supportive going forward. For example, the Fed continues to anticipate low economic growth (1.8%) and low inflation (2.0%) over the longer run, both of which could cap potential corporate earnings growth.19

1 Federal Reserve Bank of St. Louis,
2 Federal Reserve Bank of St. Louis,
3 The Wall Street Journal,
4 Federal Reserve Bank of St. Louis,
5 Federal Reserve Bank of St. Louis,
6 The Wall Street Journal,
7 Bank of America Merrill Lynch U.S. High Yield Master II Index.
8 Bank of America Merrill Lynch U.S. High Yield Master II Index (yield-to-worst).
9 S&P Leveraged Commentary & Data Weekly Wrap, September 14, 2017.
10 Credit Suisse Leveraged Loan Index.
11 Thomson Reuters Lipper.
12 Thomson Reuters LPC,
13 S&P Leveraged Commentary & Data, Loan Stats Weekly, September 14, 2017.
14 U.S. Bureau of Labor Statistics,
15 Reuters,
16 U.S. Federal Reserve,
17 Gallup,
18 National Federation of Independent Businesses Small Business Optimism Index,
19 U.S. Federal Reserve,

The Alternative Thinking Week in Review market commentary and any accompanying data (“Market Commentary”) is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The Market Commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such Market Commentary. The Market Commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the Market Commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.