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The Tell: By one measure, stock-market euphoria just hit a 6-year high — and that is bad news

If bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria, as famed investor John Templeton once said, then recent research from Bank of America Merrill Lynch offers cause for concern.

Optimism reached its highest level on Wall Street since 2011 in June, according to strategists at BofA Merrill Lynch, including equity and quantitative strategists Savita Subramanian and Dan Suzuki. The bank’s so-called sell-side indicator, which BAML says has been a reliable contrarian indicator, hit 56.4, rising 2.4 percentage points, and perhaps signaling that the bull market in U.S. stocks that is in its ninth year may be on its last legs (see chart below):

Source: Bank of America Merrill Lynch

Here’s how BofA put it: “The recent inflection from skepticism to optimism could be the first step toward the market euphoria that we typically see at the end of bull markets and that has been glaringly absent so far in the cycle.

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