If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
Bulls Run Wild at MoneyShow.com
05/17/2007 12:00 am EST
Updated May 17
Las Vegas-there's good news and bad news in the brand-new MoneyShow.com investors' sentiment indicator (view more on Video Network).
The good news: individual investors are overwhelmingly bullish.
The bad news: individual investors are overwhelmingly bullish.
How can bullishness be bad? Well, some analysts use sentiment indicators as contrary indicators, on the theory that when the crowd goes one way, it's time for smart investors to go in the other direction.
We'll see. But right now, a sample of MoneyShow.com's sophisticated, self-directed investors is running with the bulls. And they think foreign stocks, big US blue chips, and commodities will be the best places to invest for the rest of the year.
Half of the investors polled between May 1 and May 9 are somewhat bullish, predicting that the Dow Jones Industrial Average will rise less than 10% by the end of the year. A very bullish 14% think the Dow will advance more than 10%, for a grand total of 64% bulls.
By contrast, only 18% are bearish (they think the Dow will fall by less than 10%) or very bearish (they expect it to fall more than 10%). Another 18% are neutral: They believe the Dow will remain about the same when 2007 comes to a close.
The results echo the results of a recent survey (see Gurus' Views and Strategies, May 16) which showed that 62% of Yahoo! Finance users were bullish on stocks. The most recent poll of members of the American Association of Individual Investors (who had been bearish in recent weeks) reflects growing bullishness among individual investors.
If our poll and these others are any indication, individual investors may be coming back to the market. They've been on the sidelines while institutional buyers (whose sentiment is resoundingly bullish) have been pushing stocks higher.
What will they be buying when they return? Their favorite asset classes are foreign stocks (39%), large-cap US stocks (25%), and commodities (22%). Small-cap stocks appear to be out of favor (10% picked them to be the best performers by the end of the year), while cash (2%), bonds (1%), and real estate (1%) brought up the rear. This may be the beginning of a sea change in US investors' behavior. In 2006, nine out of every ten dollars Americans put into equity mutual funds went into foreign stock funds.
But as overseas markets have outperformed the US for the last few years, big US blue chips appear reasonably priced, offer big international exposure themselves, and could outperform the overseas markets as the economy slows, as I've argued here before.
On the economy, most of our poll's respondents expect inflation to increase, while just about two-thirds say the Federal Reserve will hold firm on interest rates for the rest of 2007. Click here for more details on the results.
MoneyShow.com's new sentiment indicator was presented here at the Las Vegas Money Show and posted on MoneyShow.com on Monday. 450 respondents were drawn from MoneyShow.com's Investors subscriber list, comprising self-directed individual investors. The maximum margin of error is within 4.32 percentage points of the proportion reported using a 95% confidence level.
MoneyShow.com will conduct other polls of investors, traders, financial advisors, and financial gurus throughout the year.
Are individual investors jumping back in the market after the big gains have been made, as some bearish speakers at the Show have warned? Or are they catching a wave that has not yet begun to crest? Are they ignoring a slowing economy, persistent inflation, and a precarious housing market? And are they returning to stocks just as the market enters its traditionally weakest season of the year?
We won't know the answers to those questions for a few months. But as the blue-chip Dow Jones Industrial Average sets record after record (it racked up another triple-digit point gain Wednesday, closing near 13,500), we might need to revise the old saying "sell in May and go away" to "sell in June, but not too soon."
Comments? Please email us at TopProsTopPicks@InterShow.com.
Howard R. Gold is editor-in-chief of MoneyShow.com. The opinions expressed in his commentaries are his alone and do not necessarily reflect the views of InterShow.
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