Investors seem pretty well resigned to the fact that you can't make a silk purse out of this sow's ear of a market—patience, select buying in a few strategic sectors, and a realistic view of the economy all resonate in our latest investor survey, observes MoneyShow's Gregg S. Early.
As we enter the last month of the third quarter, our latest survey shows that investors are still cautious about getting into the markets. The survey, taken in the middle of August, shows that investors are viewing the choppy markets as less of an opportunity than a sign of things to come.
And earlier this week, their feelings are reinforced by the Federal Reserve's cautiously optimistic view of the markets. While this isn't the time for a new quantitative easing, the Fed is intimating that there's a possibility of some type of QE3 package by the end of this year.
Almost 50% of survey respondents are holding 20% more in cash and cash equivalents, with 21.8% 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.
This uncertainty is also borne out in the responses to the question, “What do you think will happen to the US economy in 2012?” Granted, now that we're almost three-quarters of the way through the year, this guess is a bit more informed, but two responses dominated: Almost half (49.8%) said they expected GDP growth at a modest pace, while almost 40% expected growth to slow to just above 0%.
It isn't surprising then, that when asked in what sectors they would reinvest monies in 2012, the winner was large-cap US stocks (35.5%). This sector is the only one with easy access to refinance outstanding paper, and is sitting on plenty of cash to deploy for capital expenditures, mergers and acquisitions, or dividend growth. Again, it's a safety-first approach.
The runners up, lagging far behind, were small or mid-cap US stocks and precious metals (13.9% and 13.7% respectively). Perhaps the assumption here is that both sectors are both historically solid inflation hedges, should all the cheap money floating around the world actually allow some big economies to gain traction faster than anticipated.
This view is borne out in investors' expectations for inflation. When asked where they expect inflation to be at the end of 2012, as measured by the Consumer Price Index, 82%% said they thought inflation would be flat to 3%. And 14% expected inflation to grow by more than 3%, which matches up with potential precious metals buyers.
It seems much of this sentiment is fueled by the view that the Federal Reserve will keep rates where they are and maintain or increase monetary stimulus by year-end. A full 63% held this belief. The same goes for unemployment: two-thirds think we'll still be looking at an 8% to 9% headline unemployment number by the dawn of 2013.
Even the presidential predictions exude ambivalence: 48.7% predict an Obama re-election and 51.3% expect Romney will be sworn in next January.
It looks like patience is the name of the game and another hold-your-breath earnings season.