The Yale School of Management regularly surveys individual and institutional investors on their stock market crash confidence. Specifically, they ask the survey taker how confident he/she is that the there won’t be a stock market crash within the next six months.
According to the latest read crash confidence is at its lowest level since early 2009. In other words, investors are increasingly worried about an imminent market crash.
However, this could also be a bullish contrarian indicator. Back in 2009, this similarly low reading in the crash confidence index was followed by a monster bull run in the stock markets.
Confidence that there will be no stock market crash in the succeeding six months generally declined (though with a lot of ups and downs) over the years since 1989 until the stock market bottomed out in late 2002. Just after the terrorist attacks of September 11, 2001, Crash Confidence actually rose a little. But Crash Confidence reached its lowest point at 20.79% for institutional investors and 28.95% for individual investors as of November 2002. Crash confidence reached its all-time low, both for individual and institutional investors, in early 2009, just months after the Lehman crisis, reflecting the turmoil in the credit markets and the strong depression fears generated by that event, and is plausibly related to the very low stock market valuations then. The recovery of crash confidence starting in 2009 mirrors the strong recovery in the stock market.