Bullishness is back. After a nervous 2011, investors have started the year in confident fashion.
Indeed, the S&P 500, New York’s benchmark equity index, entered bull market territory during Monday’s trading session, at one point rising2 to more than 20 per cent above its October closing low. Small – or “retail” – investors are highly bullish, with the latest AAII3 sentiment survey showing4 47 per cent of them believe the stock market will be higher in six months, more than the historical 39 per cent average.
Many analysts and investors agree that, after the miserable feeling in markets at the end of last year, an uptick in sentiment is welcome. But just how sustainable is the rise in bullishness?
The strength of the recent rally in equities and other risky assets has caught out many investors, with many now wondering5 whether to chase it. “There has been a very significant increase in bullishness among investors in the past month or two. We are saying: don’t chase it too much,” says Graham Secker, equity strategist at Morgan Stanley.
Mr Secker points to several indicators of sentiment as being at historically very high levels. He also highlights the rapid decline in the bearish versus bullish bets ratio.
He says this means equities are in danger of being “over-cooked”. Others, though, suggest it may6 just indicate that shares were oversold in the first place.
The change in sentiment has taken place against a backdrop of news that has eased some of the markets’ biggest worries, at least temporarily. Chinese growth has slowed, but not by as much as feared, and US economic data have continued to surprise positively.
Even the eurozone, for much of 2011 the cause of investor anxiety, has had some good news. Market participants have hailed the European Central Bank’s provision of three-year loans to banks as a potential game-changer. European countries have also managed to fund themselves at debt auctions, despite fears they would struggle after credit rating downgrades by Standard & Poor’s.
“Better news has probably panicked investors into markets to some degree,” says David Shairp, global strategist at JPMorgan Asset Management.
Some argue that the bullishness is not that well entrenched. Average daily turnover on the S&P
500 is at its lowest since 1997, according to HSBC. That suggests many investors have missed out on this rally and that, overall, the market itself is structurally bearish on equitiesas7 investors have continued to exit stocks.
“The low level of volumes is perhaps a sign that investors may have talked the talk but not walked the walk 8,9 in terms of increasing risk,” says Robert Parkes of HSBC.
The recent volatility in the markets has also made it difficult for analysts and investors, who are more used to dealing with corporate earnings than rapidly shifting macroeconomic and political news, to be confident the markets will broadly move as they expect.
While10 the S&P briefly entered bull territory on Monday, its fall into a bear market in October came only a few months after hitting May’s peak. Mr Secker says: “This is the problem of markets these days: they are driven more by sentiment than fundamentals.”
Notes:
1), 7) См. Учебник “Экономический английский”, стр. 422 “Служебные слова (“as”)
2) См. Учебник “Экономический английский”, стр. 13 “Причастие”
3) The AAII (American Association of Individual Investors) Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Only one vote per member is accepted in each weekly voting period. The American Association of Individual Investors is a nonprofit organization with about 150,000 members whose purpose is to educate individual investors regarding stock market portfolios, financial planning, and retirement accounts. AAII “assists individuals in becoming effective managers of their own assets through programs of education, information and research.” The organization markets itself as an unbiased source of investment information because of its not-for-profit status
4), 5) См. Учебник “Экономический английский”, стр. 415 “Абсолютная причастная конструкция”
6), 8) См. Учебник “Экономический английский”, стр. 401 “Модальные глаголы (“may”)”
9) to talk the talk=to say the thing people expect; to walk the walk=to do what people expect
10) См. Учебник “Экономический английский”, стр. 420 “Служебные слова (“while”)