While there's plenty of cash on the sidelines, it looks like investors are putting more to work…but they're moving beyond big and safe stocks and into investments that score big in times of inflation, observes MoneyShow's GS Early.
As we enter the end of the third quarter, our latest survey shows that investors are still cautious about getting into the markets, although they're not as “risk on” as they were just a month ago.
The recent survey, taken in late September shows that investors are viewing the sluggish markets as less of an opportunity than a sign of things to come. Even the Federal Reserve's commitment to more quantitative easing and the promise to keep interest rates low hasn't sparked much enthusiasm.
About 84% of respondents think the S&P 500 will close somewhere between 10% up and 10% down for the year. Pragmatism seems to have the day.
About 85% of survey respondents are holding up to half their money in cash and cash equivalents, with about 15% holding 50% or more cash currently. That's a pretty heady number, considering how little cash is kicking off these days. It seems to be testament to the huge amount of uncertainty in the markets. However, the big cash hoarders are down 5 percentage points from last month, which means some new money is going into the markets.
This uncertainty is also borne out in responses to the question, “What do you think will happen to the US economy in 2012?”
Granted, now that we're three–quarters of the way through the year, this is less of a wild guess, but two responses dominated: 43% said they expected GDP growth at a modest pace, while almost 45% expected growth to slow to just above 0%. The slow–growth camp has gained followers. It looks like investors expect 2012 to end with a whimper.
Large–cap US stocks was the winning sector for investors in our last survey (35.5%), but it looks like investors are moving into more growth– and inflation–related sectors now, perhaps as a reaction to the Federal Reserve's most recent QE3 and talk about keeping rates low even if inflation reappears.
The runners–up are again small– or mid–cap US stocks and precious metals (15.7% and 16.7% respectively)…but they're gaining ground.
Ironically, few are predicting wild inflation anytime soon. When asked where they expect inflation to be at the end of 2012, as measured by the Consumer Price Index, 88% said they thought inflation would be flat to up 3%. And only 7% expected inflation to grow by more than 3%. Maybe 2013 is the year for inflation.
And the same can be said for unemployment—more than 70% think we'll still be looking at a jobless rate between 8% and 9% by the dawn of 2013.
But the election results show that there has been a turn in thinking: In August, 49% predicted an Obama reelection, and now that number has grown to more than 52%. Romney has gone from the predicted winner, at just over 51%, to a runner–up with 47% of the vote.
In short, investors aren't exuding confidence, but they're not expecting the worst either.