Investors Aren't Believers

02/04/2010 2:00 pm EST


Howard Gold

Founder & President, GoldenEgg Investing

Orlando, FL—Investors just aren’t buying this rally—in any sense of the word.

While stocks have surged 62% from their March lows, many individual investors are sitting on the sidelines, still licking their wounds, still unwilling to believe the big move is for real. They have parked their money in cash earning nothing or have chased after shrinking yields, but have shunned equities like the plague.

And, according to our new investor sentiment indicator, that won’t change any time soon.

Our latest survey of the active investors who use shows sentiment hasn’t budged since last August, when we did our last US poll. Bulls—investors who expect the Standard & Poor’s 500 index to finish ahead for 2010—edged up slightly, to 49%.

Bearish investors, those who think the S&P will fall by the end of the year, slipped two percentage points, to 32%. The remaining 19% are neutral and expect stocks to remain where they are by December 31st.

Click to Enlarge

All those numbers are virtually identical with last August’s findings, even though the S&P has risen 9% since then.

The results of the new Investor Sentiment Indicator were presented here at the World MoneyShow. Some 765 respondents from's Investors subscriber list were polled between January 26th and January 29th. The maximum margin of error is within 3.43 percentage points of the proportion reported using a 95% confidence level. (You can see the whole PowerPoint here.

But if you dig a bit deeper into the poll, which was concluded last Friday, you’ll find underlying pessimism that’s even thicker than it was almost six months ago.

Right now, a whopping 85% of our respondents doesn’t think the economy is out of recession yet (although it’s unclear what their definition of recession is), and an even bigger percentage—88%—doesn’t think the housing market has bottomed yet.

What’s more, a sizeable majority, 59%, doesn’t expect improvement in either front until at least next year. That’s a huge increase from the 35% to 37% who thought it would take that long for housing and the economy to mend last August.

And when we asked for their views of the market, 60% said we’re in a bear market rally and stocks will make new lows. (Only 14% think we’re in a new bull market.) That figure is nearly double the 32% who said we’re in a long-term bear market in our August poll Note the remarkable consensus: 59, 59, 60. A decisive majority of the investors we polled have a profoundly bearish long-term outlook on housing, the markets, and the economy.

Is that a contrary indicator, as the market always climbs a wall of worry? It sure could be, but it also shows why Wall Street shouldn’t expect to see mom and pop investors throw their money back into stocks any time soon.

Our audience may be pessimistic for the long run, but they’re at least modestly hopeful for now, and international stocks are their favorite asset class. They particularly like developed-market equities (that includes Canada and Australia, right?): 24% of our respondents say they will perform the best of any asset class between now and the end of the year. Emerging markets, which have had a huge run, commanded the allegiance of only 9%.

Large-capitalization US stocks garnered a respectable 15% of the votes, with small- or mid-cap US stocks close behind at 13%. And precious metals shone, too: 19% of the people who answered our survey expect them to be the best performers this year, while another 9% like other commodities. Bonds, real estate, and cash each got very little support.

The continued interest in commodities by this audience is no surprise. They may not expect the economy to recover so quickly, but they are worried about inflation. Some 56% think it will increase this year, and they say deflation is off the table.

And nearly three-quarters aren’t holding their breaths waiting for the Federal Reserve to raise interest rates, either. Only 27% think that will happen, although nearly two-thirds expect the Fed to begin withdrawing its extra monetary stimulus of the economy.

The Obama administration can take at least some comfort from their political predictions (although we wonder if our audience’s track record is better than that of, say, the pundits).

A majority, 54%, expects Congress to pass some form of health care reform this year (although, of course, that percentage couldn’t get a bill through the US Senate). And an even bigger percentage—57%—think Democrats will lose seats in both houses of Congress in the midterm elections, but will maintain control of Congress.

For Democrats, that would be a Pyrrhic victory, to be sure, and would block the administration from achieving much of its agenda. But it’s also a situation Wall Street and many investors like—at least Congress can’t do that much harm, right?

But take a step back and look at the broad sweep of this survey’s findings. Our respondents are looking for a decent market in the short run, but inflation, recession, and political gridlock down the road.

That sounds a lot like the 1970s, a period when many of the people who answered our survey came of age. Could they be subconsciously pining to relive their lost youth?

Not me. I don’t miss disco, Whip Inflation Now buttons, the existential despair of Hollywood’s New Wave, or the dreary, oppressive reign of Leonid Brezhnev in the Kremlin (though I wouldn’t mind a new version of the Ramones or Talking Heads).

I’ll take the future, whatever it brings.

Howard R. Gold is executive editor of The opinions expressed here are his own.

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on MARKETS

Keyword Image
Crude March Madness
03/22/2019 10:48 am EST

Energy markets are experiencing their own March Madness, notes Phil Flynn, senior market analyst at ...