“Irrational Exuberance” was the phrase used by then Federal Reserve Board chairman Alan Greenspan in December of 1996 as a warning during the dot-com bubble that the stock market might be overvalued. The irony was the fact that the markets continued their rise, and three years after the speech valuations dwarfed the levels at the time of the speech.
Ongoing evidence of the FEDs inability to make forecasts?
The following charts are from a survey of 8,550 investors in 24 countries showing that despite the stresses presented in the past 18 months investors are optimistic, maybe overly so, about returns going forward.
Impressive double-digit returns in 2020, the reality of vaccines in 2021, and the prospects of global economies reopening are adding up to this wave of optimism for investors. They also add up to big expectations for investment returns, much higher than what the professionals expect.
Behavioral finance experts would likely say that this is a prime example of recency bias, in which investors have seen positive returns under difficult circumstances and assume better returns under better conditions.
Who's right? The investors or the professionals? We can’t say. STAY TUNED!
(One caveat, if there is anyone worse making forecasts than the FED it is financial “professionals”)