OPTIMISM AT HIGHEST LEVEL SINCE NOVEMBER 2003
The latest Merrill Lynch fund managers survey shows an extraordinary jump in optimistic sentiment. The survey makes up the current psychology of 204 portfolio managers running over $550B in assets. The report shows a 63% jump in sentiment since July and the highest reading since November of 2003:
A net 75 percent of survey respondents believe the world economy will strengthen in the coming 12 months, the highest reading since November 2003 and up from 63 percent in July. Confidence about corporate health is at its highest since January 2004. A net 70 percent of the panel respondents expect global corporate profits to rise in the coming year, up from 51 percent last month.
August’s survey shows that investors are matching their sentiment with action, by putting cash to work. Average cash balances have fallen to 3.5 percent from 4.7 percent in July, their lowest level since July 2007. Equity allocations have risen sharply month-over-month with a net 34 percent of respondents overweight the asset class, up from a net 7 percent in July. Merrill Lynch’s Risk and Liquidity Indicator, a measure of risk appetite, has risen to 41, the highest in two years.
“Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March. And yet with four out of five investors predicting below trend growth for the year ahead, a nagging lack of conviction about the durability of the recovery remains,” said Michael Hartnett, chief global equities strategist at Bank of America Securities-Merrill Lynch Research. “The equity rally has been narrowly led by China and tech stocks. We have yet to see investors fully embrace cyclical regions such as Japan or Europe, or Western bank stocks.”
Source: PR Newswire
Hi TPC, has this been a contrarian indicator in the past but 2003 was the beginning of a bull market? Is 2003 as such confirming a new bull market for 2009 bull’s thesis? Has this changed your late August, September outlook? Thanks in advance.
Paul,
this optimism is one of the primary reasons why I am not bullish currently. And no, this single data point doesn’t change anything.
“August’s survey shows that investors are matching their sentiment with action, by putting cash to work. Average cash balances have fallen to 3.5 percent from 4.7 percent in July”
The “cash on/off the sidelines” myth (or at least spin) is so pervasive!
Imagine that average equity allocations had been 65%. That’s $4.70 in cash, $65 in equities, and $30.30 in other assets. The equities rally 50% to $97.50. Total holdings are now $132.50. Now the cash balance is 3.5 percent even if investors didn’t buy or sell a single stock!
Most people don’t understand that cash is a transaction. You sweep out of the MM into stock and the seller sweeps out of stock into cash. The only thing that changes is the price of the stock which is driven almost entirely by the willingness of the buyer and seller to agree on price.
I want to scream every time I hear someone on CNBC talk about cash on the sidelines….
I find that when I hear the pundits trotting out the “cash on the sidelines” and IBES/Fed Model rationalizations for higher prices, it usually means they have no fundamental reasons to justify higher prices and it could be indicative of topping action.