SENTIMENT COULD BE POINTING TO FLAT MARKET FOR SEVERAL QUARTERS
Sentiment has not changed dramatically according to the latest data. The weekly Investors Intelligence poll of Financial Advisers showed that bullishness jumped to 41% from last week’s reading of 35.6%. The AAII sentiment poll was little changed, however. They reported a slight drop to 34.9% bullishness. Historically, this is a relatively neutral reading and does little to provide us with a firm market opinion. As we reported yesterday institutions have little conviction in either direction as well.
The AAII did, however, note a record increase in neutral sentiment:
“If history repeats, this week’s neutral sentiment reading could be notable. The S&P 500 was essentially unchanged over the six-month period of January-June 2006, falling just 1.2% over the six-month period after neutral sentiment hit 35.9%.
Conditions are certainly different now than they were six months ago, but given the prevailing crosswinds, a flat market would not be unexpected. Though corporate earnings are projected to grow, unemployment will likely remain high. At the same time, the Federal Reserve is moving to reduce its stimulus, as was seen with last week’s increase in the discount rate. Though the pace of the economic recovery could accelerate, there are also risks, such as sovereign debt (and domestic municipal debt).”
Source: AAII
