Investors are scared—really, really scared.
That’s what our latest MoneyShow.com Investors’ Sentiment indicator tells us, in big, bold, red letters:
HELP!
Our most recent survey of the active, mainly self-directed investors who use MoneyShow.com showed the highest bearish ratings we’ve ever seen—far greater than back in February 2009, just before the market bottomed.
And now, with stocks still 64% off their lows, our usually composed and confident audience, who have kept their eyes on the long-term prize through the worst the markets threw at them, appears finally to have succumbed—or is it capitulated?—to the baser instincts of the reptilian brain.
I would call it “fight or flight,” but after a scary European debt crisis, the flash crash, and a steady drip, drip, drip of dreary economic news, there’s not much fight left in them.
Only 7% of the 657 people who responded to our survey (conducted between Friday, August 13th and Tuesday, August 17th) expect the Standard & Poor’s 500 index to rise by more than 10% by the end of 2010, while another 26% thinks it will rise, but by less than 10%.
So, only 33% of those surveyed could be called “bulls”—a huge drop from the 47% who held those views in May or the 57% who were optimistic in May 2009.
Meanwhile, though the ranks of the very bearish (those who look for stocks to fall by more than 10% by December 31st) have remained even at 18%, the percentage of those polled who believe the market will fall but by less than 10% has leaped to 24%.
So, not only is that 42% bearishness the highest since we started polling investors three years ago, it also marks the first time the bears have outgunned the bulls—and by a comfortable 42% to 33%—in the history of our survey.
This survey also records the highest levels of neutrality—25%—we’ve ever seen. So, one out of every four investors polled thinks the market is going nowhere. (The survey has a 95% confidence level, with a margin of error of four percentage points either way.)
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That’s why it’s no surprise we’ve seen a big increase—to 11%, from 4%—in the percentage of investors who think bonds will be the best performing asset class for the rest of the year. Of course, bonds have been among the best performers so far in 2010—and investors are clinging to them for dear life.
Overseas stocks, especially emerging markets, also have gotten increased support—from 16% in May to 24% now. But “made in the USA” has become like the scarlet letter: Only 22% of our respondents expect US stocks to be the best performers for the rest of 2010, the lowest support for domestic stocks we’ve seen for a couple of years.
Gold and commodities bugs are hanging in there, though. Some 37% of those polled think gold and commodities will be the best-performing asset class for the rest of the year, virtually unchanged since the last time.
Gold has held up well as a haven in a time of turmoil. But it also thrives in inflationary times, and this group can’t completely let go of inflation fears, either.
You can see the slide show with the results of the entire survey here.
Next: Deflation, Recession, and the Midterms
|pagebreak|Although 11% of those surveyed now accepts the deflation scenario—no surprise, since it’s all over the media these days—and 12% expects disinflation, 20% looks for inflation to increase while 57% thinks it will remain the same.
Meanwhile, 45%—a solid plurality—thinks the Federal Reserve will keep rates where they are and add more monetary stimulus (the Fed has already moved in that direction).
Our users also are unusually pessimistic about the economy: A clear majority (57%) thinks the current recession will end after 2011. That raises the question of whether this is a “double dip” or a single scoop—one continuous recession that began in December 2007.
They are only slightly more optimistic about the housing market. Forty-seven percent (a bit less than half) thinks housing will hit bottom after 2011, and another 34% looks for it to bottom next year. At least there’s some light at the end of that tunnel!
And their overall gloom is reflected in their long-term view of the market, where 58% believes we’re in a volatile market that won’t make big moves either way, and fully one-third says we’re still in a bear market and are looking for stocks to make new lows. Fewer than 10% thinks this is the real deal—a new bull market.
They are somewhat more optimistic when it comes to politics: A solid majority (57%) says the Republicans will win control of at least one house of Congress. Barely 10% expects the Democrats to hold on to most of its seats. That’s change this group can believe in!
But they do appear to see the end of at least some of the Bush tax cuts as inevitable. Some 87% of those polled expect Congress not to extend those cuts to households earning more than $250,000, which means their marginal rate will go as high as 39.6%, where it was when President Bush took office.
Thirty-seven percent expects Congress to extend the cuts for households earning less than $250,000.
Finally, we asked how their investing behavior has changed in the wake of the financial crisis and bear market. Some 29% said it hasn’t changed much, which speaks to their discipline—or stubbornness. Four percent says they have turned over much of their portfolio to financial advisors, not exactly a ringing vote of confidence in that group.
And another 20% says they invest and trade stocks and funds more actively than they did before. Apparently, the arguments of the investors-must-become-traders crowd have worked with this group.
But one out of every four of the people we polled says they’re buying fewer stocks and funds than they did before, while another 22% puts more of their money into bonds and dividend-paying stocks.
So, fully half of the investors we surveyed are getting more conservative. After the tech bust, subprime crash, and the worst bear market in 70 years—and with this group entering or approaching retirement—who can blame them?
This appears to be one of those times when fear trumps greed. Whether that will mean opportunity for the courageous remains to be seen.
Howard R. Gold is executive editor of MoneyShow.com. The views expressed here are his own.
