Individual investors are feeling the most upbeat about the stock market since 2007

Investors are feeling the most optimistic about stocks in nearly 17 years, according to one stock market sentiment gauge.

• Individual investors are feeling the most optimistic about stocks in nearly 17 years, a Yale sentiment gauge shows.
• Investors have been growing more bullish on stocks as they anticipate the Fed to slash interest rates.
• But hefty rate cuts and a economic soft-landing are unlikely to go together, some experts warn.

Everyday investors are feeling the most optimistic about the stock market in nearly 17 years.

That's according to the Yale School School of Management's US One-Year Confidence Index, a sentiment gauge that measures the percentage of respondents who believe the Dow Jones Industrial Average will end the year in the green.

Over 81% of individual investors believed the Dow would end the next year higher, according to the index's December reading. 

That's the highest proportion of respondents that have felt bullish about the Dow since March 2007, less than a year before the subprime mortgage crisis would batter the US economy and send stocks plunging. The Dow reached its lowest point two years later, plunging 54% from its peak.

Institutional investors are slightly less optimistic, with 74% of saying the Dow will end in positive territory over the next year, the One-Year Confidence index shows, the highest reading in about 18 months. 

Investors have been growing increasingly bullish on stocks in recent months, thanks to ambitious expectations for the Fed to slash interest rates this year. 

Lower interest rates are expected to loosen financial conditions and give a boost to equities. Investors are now pricing in six to seven rate cuts by the end of the year, according to the CME FedWatch tool, about double what central bankers have officially projected for 2024.

But the market could be getting too ahead of itself, some market commentators have warned. Interest rate cuts are also a sign the Fed sees a slowing economy, and hefty rate cuts in the past have traditionally been followed by a recession. That means expecting six rate cuts and a soft-landing is a "pipe dream," one Harvard economist warned.

Meanwhile, investor sentiment that markets will avoid a crash are also lower. According to the Yale's US Crash Confidence Index, just 39% of individual and institutional investors surveyed in December believed there was less than a 10% chance of stock market crash over the next six months, down from 40% or more in October.