If you think you are having a tough time keeping your emotions in check regarding this market, you’re in good company. While just last week, everyone was setting their sights on the DJIA hitting a new all-time high, now at least one survey shows that investors are now the most negative they’ve been in 2006.
According to Merrill Lynch’s monthly survey, investor optimism towards US equities fell to a six-month low. On a sector basis, utilities are the most despised sector while energy is the favorite (little surprise here).
Inflation is also widely expected to continue rising as 70% of those polled expect prices to rise this year. This is the highest level since March 2005 which coincided with another short-term spike in interest rates.
Sentiment is a tricky thing. Sometimes it matters and sometimes it doesn't. Sometimes it can be overly optimistic for long periods and sometimes not.
But, it surely isn't dour enough to ignite a massive rally. And negative sentiment after a blow off isn't exactly a positive thing historically. Although, who knows, maybe we'll see new highs across the board at some point. Doubt it. This kind of blow off is equal to 2000. Just not in the indices that led the 2000 blow off. Of course, we knew that wouldn't happen because they are still overvalued. Hence, the liquidity went elsewhere this cycle. Maybe I should listen to Wall Street and load up. They've got quite a track record. In all past bubbles they said more was coming and many went to jail for their less than candid behavior. Uhh..including the head of the NYSE in 1929. I prefer to do my own analysis. I know more than most money managing twits anyway. And that doesn't need to be much. What's the old adage? I don't need to be faster than the lion just faster than the other sucker.
Sentiment is more aptly reflected by trader's actions. ie, All is reflected in price. And they have been glutenous pigs in metals, energy, commodities, broker/dealers and transports. Thus, I prefer to watch their action rather than what they are saying. That includes professionals and the retail investor.
Posted by: x the cynical investor. | May 16, 2006 at 02:58 PM