According to a sentiment indicator, these 25 stocks are at risk of collapse in the next two years.
It’s a bad sign when investors convince themselves that the probability of a market crash is particularly low. And today things are exactly like this.
According to one particular sentiment index, the stock market in the US is likely to perform below average over the next 24 months, as will the 25 US stocks that are currently very popular and rising strongly. The list includes super companies such as Nvidia, Super Micro Computer, and Broadcom.
How the US Crash Confidence Index works
The market indicator, known as the US Crash Confidence Index, was created 40 years ago by Robert Shiller of Yale University and is now maintained by the Yale School of Management.
Each month a group of individual and institutional investors are asked, "What do you think is the likelihood of a catastrophic stock market crash in the United States?." As with other sentiment indicators, its meaning should be interpreted in reverse: it is a bad sign when investors believe that the probability of a collapse is particularly low.
Yale reports the index in terms of the percentage of respondents who think the probability of a collapse is less than 10%. Higher points on the chart indicate that investors think the probability of a collapse is lower, and vice versa. The six-month moving average of the Institutional Investor Index reached its 15-year high, and the Individual Investor Index reached its second highest level in the same time frame.
Analyzing data since 2001, the year in which Yale began updating the index every month, we note how the indicator is inversely correlated with the performance of the S&P 500 in the following two years, which means that higher index readings are correlated with below-average performance and vice versa. The correlation is significant with a confidence interval of 95% for the institutional index and 93% for the individual investor index.
The US Crash Confidence Index can be a valuable contrarian indicator because stock market investors become more or less bullish for reasons unrelated to the stock market itself. An irrational rise (as opposed to a rational rise) causes stocks to be overvalued on average and as a result, the market tends to clash with the widespread belief that a crash is unlikely.
The role of emotions in the performance of the US Crash Confidence Index has been documented in a new study by Shiller, Yale professor William Goetzmann, and Dasol Kim of the US Treasury Department’s Office of Financial Research, titled "Emotions and Subjective Crash Beliefs", published a month ago.
The researchers found that a respondent’s belief related to the likelihood of a market crash is strongly influenced by "rare and extreme events" that have nothing to do with the stock market.
The contrarian indicator based on the Crash Confidence Index does not in itself predict that a crash will occur, but simply that there will be below-average returns in the next two years. The index reflects the subjective emotions and beliefs of investors, which are very different from objective factors which instead have a statistically significant ability to predict the probability of a collapse. As of today, according to objective factors, the odds of an entire market crash are below average at this time.
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The 25 stocks at risk of collapse in the next two years
But some stocks still appear vulnerable to collapse, understood as a drop in price of at least 40% in the following two years. A recent study highlights how the probability of a stock’s collapse increases to the extent that its two-year performance is superior to that of the S&P 500. When this margin of outperformance is 100 percentage points, for example, the probability of a collapse it is close to 50%. When it is 150 points or above, a collapse becomes almost certain.
The table lists the 25 stocks in the S&P 1500 index that have outperformed the S&P 500 over the last two years by more than 200 percentage points (data source: FactSet). Not all of them will collapse, of course, but many of these are likely to fall by more than 40% in the next two years.
| Stock | Ticker | % growth above S&P 500 in the last 2 years |
|---|---|---|
| Super Micro Computer, Inc. | (SMCI) - | 1,929 |
| Abercrombie & Fitch Co. Class A | (ANF) | 867 |
| NVIDIA Corporation | (NVDA) | 651 |
| Weatherford International plc | (WFRD) | 598 |
| Powell Industries, Inc. | (POWL) | 496 |
| e.l.f. Beauty, Inc. | (ELF) | 443 |
| Tidewater Inc | (TDW) | 418 |
| Royal Caribbean Group | (RCL) | 374 |
| Helix Energy Solutions Group, Inc. | (HLX) | 348 |
| Carpenter Technology Corporation | (CRS) | 306 |
| GE Aerospace | (GE) | 269 |
| UFP Technologies, Inc. | (UFPT) | 267 |
| XPO, Inc. | (XPO) | 265 |
| SkyWest, Inc | (SKYW) | 253 |
| Protagonist Therapeutics, Inc. | (PTGX) | 249 |
| Vistra Corp. | (VST) | 248 |
| Wingstop, Inc. | (WING) | 241 |
| Comfort Systems USA, Inc. | (FIX) | 239 |
| EMCOR Group, Inc. | (EME) | 234 |
| Jackson Financial Incorporation Class A | (JXN) | 228 |
| Fair Isaac Corporation | (FICO) | 226 |
| Constellation Energy Corporation | (CEG) | 224 |
| Dorian LPG Ltd. | (LPG) | 216 |
| Broadcom Inc. | (AVGO) | 208 |
| Arista Networks, Inc. | (ANET) | 201 |
Original article published on Money.it Italy 2024-07-23 15:35:41. Original title: Queste 25 azioni sono a rischio crollo nei prossimi due anni
