Measuring consumer 'euphoria' with the Levkovich Index

Consumer sentiment rose to 67.8 in August, published by the University of Michigan consumer survey. But sentiment is still below "euphoric" levels according to the Levkovich Index. What does this mean exactly?

Yahoo Finance markets reporter Josh Schafer explains how market and investor "euphoria" and "panic" are measured under this rule.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Luke Carberry Mogan.

Video Transcript

Consumer sentiment has fallen back below euphoric levels.

What does that mean?

Y finances Josher joins me now to explain.

Hey, Josh.

Hey, Julie.

Yes.

So we're taking a look at what is called the Levy Index.

This is from the equity strategy team over at City.

And essentially, what they're tracking is sentiment among investors.

So what happens here is the index goes up as sentiment gets euphoric.

People are perhaps maybe too excited about the stock market or over extended.

You can see that.

We saw that in periods like 2021 when we had the meme stock craze and stocks went wild.

You can see it all the way back here.

This is your.com Bubble.

My circle tool might not quite be working, but I'm gonna tap it one more time and we'll see if we can get it to work.

Not quite, but you get the point.

So that's where you had those two big jumps and we had been ticking up this year.

Interestingly, it came back down in that recent pull back that told the strategist at City OK, maybe we see opportunity and gross stocks here.

Maybe this means that we can get into some growth names because sentiment isn't too frothy.

What I found interesting, Julie was we spoke with another strategist from a different bank, Jill Carey Hall, over at Bank of America earlier today, and she had kind of a different read on investor sentiment, and I wanna take a listen to what she had to say.

Sentiment had had largely been been increasing, but it's still, you know, not at levels that are are extreme highs.

Um, so you know, we we look at Wall Street's average recommended allocation to equities and a balanced funds.

So that tends to be a contrary indicator that when strategists are extremely bullish and telling you to put all of your money in equities, that would be a sell signal and and vice versa would be a buy signal.

So what Carrie Hall was saying there It's called their bull bear indicator, and she said that it's kind of just remain neutral, So this pullback didn't do much to that.

And what I think is a takeaway from that is Bank of America sees the S and P 500 finishing the year 5400.

They don't think we've been bouncing from euphoric and then maybe more opportunistic levels.

They think stocks are gonna kinda chug along here.

They see opportunity outside of tech stocks and more of a rotation.

And of course, we were talking about with City.

Here they see the S and P 500 going to 5800 to end the year.

So going higher, probably led by gross stocks.

Well, either way you slice it.

Both of those targets are higher than the S and P was at the beginning of the year.

Thanks, Josh.

Stocks go up, Julie.

That's what they say.