Bullish Sentiment on the Rise: Is It Time to Get Worried ... or Get on Board?
For FULL Article: Apr 27, 2010 08:15am EDT by Aaron Task in InvestingSentiment is always tricky to measure - and something of a Rorschach test - but with the Dow up 71% from its March 2008 lows, the inevitable has started to happen: Bullish sentiment is rising.Anecdotally, at least, the migration from investor "disbelief" in the rally to "acceptance" (if not "embrace") can be seen in a number of recent indicators, including:
But what's noteworthy about sentiment is the dichotomy to how the pros view the market vs. the retail investor.
As of April 21, the Investors Intelligence weekly survey of newsletter writers showed bullish sentiment rising to 53.3% while bears fell from 18.9% to 17.4%. Anything less than 20% bears is considered extreme.
Meanwhile, bullish sentiment in the American Association of Individual Investors' survey was 38.1% on April 21, down from 48.5% on April 15 and below the long-term average of 38.9%. Bearish sentiment rose to 34.3% vs. 29.7% the prior week and is above the long-term average of 30.0%, AAII reports.
A recent Schwab survey of its active traders and mutual fund inflow data in recent months show a similar disbelief about U.S. equities among individual investors -- as does the generally negative tone in our comments section.
A rise in bullish sentiment is generally considered a negative contrary indicator, as Henry and I discuss in the accompanying clip. But it's also true that bull markets typically don't peak until the skeptics fully capitulate and the general public gets extremely bullish on stocks, and we're a long way from there.
- -- Newsweek's "America's Back" headline.
- -- An "S&P 3000 by 2020" prediction on Tech Ticker.
- -- A WSJ story about rising bullishness among technicians, featuring a prediction from Lowry's Paul Desmond's that "we could easily be getting into a speculative advance here, a real momentum move."
- -- A modicum of towel-tossing by noted bears such as Jeremy Grantham of GMO. In January, Grantham said the S&P was fairly valued at 850. In his most recent quarterly letter, the famed investor writes "the line of least resistance is a market move in the next 18 months or so back to the old highs, say, 1500 to 1600 on the S&P, accompanied by an equivalent gain in most risk measures, followed once again by a very dangerous break."
- -- A Bloomberg story about stocks being the cheapest since 1990, excluding the 2009 market trough.
- -- Rising optimism among private sector trade groups surveyed by the National Association for Business Economics, as detailed here.
But what's noteworthy about sentiment is the dichotomy to how the pros view the market vs. the retail investor.
As of April 21, the Investors Intelligence weekly survey of newsletter writers showed bullish sentiment rising to 53.3% while bears fell from 18.9% to 17.4%. Anything less than 20% bears is considered extreme.
Meanwhile, bullish sentiment in the American Association of Individual Investors' survey was 38.1% on April 21, down from 48.5% on April 15 and below the long-term average of 38.9%. Bearish sentiment rose to 34.3% vs. 29.7% the prior week and is above the long-term average of 30.0%, AAII reports.
A recent Schwab survey of its active traders and mutual fund inflow data in recent months show a similar disbelief about U.S. equities among individual investors -- as does the generally negative tone in our comments section.
A rise in bullish sentiment is generally considered a negative contrary indicator, as Henry and I discuss in the accompanying clip. But it's also true that bull markets typically don't peak until the skeptics fully capitulate and the general public gets extremely bullish on stocks, and we're a long way from there.
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