Sentiment Falls, But Investors Still Euphoric

Investors are still Euphoric, and there is a good chance of a correction this year, but the S&P 500 is only slightly overvalued according to Citi’s most recent PULSE report.

“Our Panic/Euphoria model remained in Euphoria territory, while our proprietary Cyclical Expectations Model bounced higher. One of our highly correlated valuation metrics argues that the S&P 500 (INDEXSP:.INX) is roughly 20% undervalued, but several other measures are less attractive,” writes Citi analyst Tobias Levkovich.

This Euphoria reading is slightly lower than last week, dropping from 0.58 to 0.55, but it still gives an 83% historical probability of a downward correction in the next year. While most people have expected the market to drop, as...