This indicator, designed by Goldman Sachs to signal bear market risk, is at its highest levels from the last 50 years. It is based on measures of equity valuation, growth momentum, unemployment rates, inflation and the yield curve. It attained peaks towards the end of the internet bubble and near the end of the housing bubble. The gauge often precedes a bear market but is sometimes indicative of a prolonged period of low index returns.
Another metric on investor behavior is the Haver Analytics/Citi Research Panic/Euphoria model. The model relies on their Market Sentiment Composite. It is intended to track the mood of the investor base and is used as a contrary signal. Note below that forward returns based on euphoric readings, are low, meaning that the market tends to fall or tread water after the indicator breaches the upper threshold.
Investors have returned to favoring growth stocks. July appears to have been an aberration in that growth characteristics lagged. Through August and into the first week of September, companies with high forecast growths are leading the market again.