The stock market may have hit a new record, but historically high investor trepidation is still lurking under the surface.
With that established, those statistics and comparisons to 1987 certainly seem troubling. But the experts at Leuthold Group are actually quite constructive on the near-term future of the stock market.
The firm points to other prior instances when the worry gauge was in its top quintile. The obvious examples center around the dotcom and 2008 financial crisis crashes. Leuthold points out that, on both occasions, stocks made their final peaks months later, leaving ample short-term runway. The clear takeaway there is that stocks could stay strong for a while longer.
Leuthold's second argument in favor of near-term bullishness calls upon a long-standing market theme: the idea that stocks often climb"walls of worry." What that means is that investor anxiety — the exact kind measured in the chart above — can protect equities from sudden sell-offs as they melt upwards.
In the end, one thing is certain: a reckoning is coming — at some point. Leuthold's worry gauge can be interpreted in multiple ways because, like most metrics, it's not 100% infallible. That ultimately leaves open the very real possibility of a sudden, 1987-like collapse, even if that's not necessarily everyone's base case. And that fact alone should have investors shifting towards defensive positioning.simply click here to claim your deal and get access to all exclusive Business Insider PRIME content.A simple trading strategy made investors 42% in just 6 days last earnings season. Here's how Goldman Sachs says you can replicate it.
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