Wall Street is feeling good. Perhaps, too good. Ned Davis Research noted that its daily trading sentiment composite has entered “excessive optimism” territory after hitting an all-time low in early April — when President Donald Trump unveiled steep tariffs on imported goods into the U.S. Indeed, the S & P 500 hit an intraday record Tuesday, briefly topping 6,300 before ending the day lower. The Nasdaq Composite also hit an all-time high in the last session. This comes despite the Trump administration putting more pressure on other countries over trade. Trump on Saturday said the U.S. will impose a 30% tariff on the European Union and Mexico beginning Aug. 1. .SPX YTD mountain SPX year to date Ned Davis highlighted other worrying signs: Rising speculation in leveraged long funds A spike higher in ETF flows over the past four weeks S & P 500 price-to-sales ratio at a record high To be sure, there are some counterintuitive positives that can keep the stock market going higher, including consumer pessimism about the economy and the direction of stocks over the next 12 months. These “offsets” are keeping Ned Davis Research bullish on equities despite the frothy signs, the firm said in the note. NDR added that it has “tested our sentiment polls after extreme pessimism and after breadth thrusts with breakaway upside momentum, and in most cases, the first move to excessive optimism was a fake signal.” That said, investors should tread carefully as an escalation in trade negotiations could knock stocks from these levels. There’s also the earnings issue. Corporate America is in the middle of reporting second-quarter results, with big banks such as Goldman Sachs , JPMorgan Chase and Morgan Stanley posting their numbers this week. If companies cannot meet already muted expectations for the season, it could spark a selling spree on the Street as the current sky high valuations are called into question.
