The Markets are euphoric about a likely peak in interest rates.  My contrarian nature is focused on another likely peak- Investor Exuberance.

I calculate investor exuberance from both sentiment and volatility indicators.  The below chart compares the S&P 500 with my gauge of exuberance.  While both the Market and exuberance can go higher, near term I don’t see much of a driver.

• Inflation has moderated but it’s still higher than desired. 
• Rates are likely peaking but the Fed is still contracting the money supply.
• Corporate profits haven’t bottomed yet and there isn’t any “real” inflation adjusted revenue growth.
• Global economy has stalled- China, Germany & Japan all experiencing poor exports.

So while the more optimistic are celebrating 4.8% inflation, I remain cautiously contrarian. 

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