Sentiment Isn't Keeping Up With the Dow
By Aaron L. Task
Street.com
Editor at Large
5/3/2007 3:19 PM EDT
Where are the wild-eyed bulls?
That's the question I've been asking myself the past few days, after first noting Don Hays of Hays Advisory forecasting a "lull" in the market after its recent ascent.
"On the short term, we have backed off our aggressive buy strategy just slightly," Hays wrote Wednesday morning. "We have put it in neutral and have done ever so slight pruning, but aching to put that smidgeon of cash back into stocks." (Italics added lest anyone be confused about Hays' perspective.)
Then this morning, Al Goldman of A.G. Edwards was quoted in The Wall Street Journal advising investors to "hold off" on putting money in the market. Also earlier today, CNBC had Eugene Peroni talking about a possible 3%-5% near-term retreat.
No one would ever confuse Hays, Goldman or Peroni for Doug Kass, so I ask (again): Where are the wild-eyed bulls?
A Columnist Conversation post about Hays et al. sparked a reader response that helps explain the mentality out there: "The reason for the negativity is the Dow Jones Industrial Average has gone up 2,500 points in less than a year, which would appear absurd. People remember last May-July, when the market tanked for no apparent reason. People are rightfully distrustful as nothing goes up in a straight line -- also distrustful of the cheerleading, pompom-waving ["quasten-wedelnd"] financial media."
On a related note, Helene Meisler points out that the percent of bears in the American Association of Individual Investors weekly survey was "at the same level as it was at last July's lows."
The skepticism of retail investors is reflected in the flows into U.S. equity mutual funds.
"Equity funds brought in only $8.20 billion [in March] , down from $26.29 billion in February and off a resounding 76% y/y," reports Citigroup chief U.S. equity strategist Tobias Levkovich. "Both domestic and international fund flows displayed a significant decline in March, as U.S. fund flows were $1.61 billion, compared to international fund flows of $6.59 billion. Moreover, in 1Q07, total stock fund flows were down about 30% from 1Q06, with US and international flows both recording a similar y/y drop."
Inflows started to pick up in April; AMG Data reports equity fund inflows ($3.79B) topped international fund inflows ($2.28B) for the week ended April 25, a rare occurrence of late.
"Since the beginning of 2006, a staggering $232 billion has poured into global equity funds and ETFs -- 4.1 times the $56 billion inflow into U.S. equity funds and ETFs," according to data from Trim Tabs, as published in Forbes.
After posting about the cautiousness of strategists and retail investors, a reader emailed me a link to a Seeking Alpha story with some startling data about sell-side analysts who currently "rate a lower percentage of [S&P 500] stocks as buys than at any other time over the last ten years," according to the blog. "It appears as though the closer the S&P 500 gets to its old highs, the less likely analysts are to embrace this bull market."
I'm no raging bull, and I certainly understand the logic of being cautious after this huge rally. But the fact more investors are getting more skeptical as the market rallies (which I totally understand) is a bullish sign from a contrarian perspective and is very different than 1999, for example.
And it's interesting there's all this potential "kindling" ahead of tomorrow's jobs report and next week's FOMC meeting, with low expectations for both.
I see Bob Marcin can be added to the list of those who can be described as cautious or, at best, cautiously bullish and, anecdotally, I can tell you RealMoney readers are very skeptical about the market here.
Which brings me to the comments of another reader: "Hi Aaron, while I do see the logic to your bull/bear debate, I think the question you could be overlooking is even though there might not be many bulls out there, I can tell you that I am a bear and I would not short this market for all the tea in China. So I think if one were to ask a bear if he is scared to be short and is he short? While asking a bull if he is scared to be long and if he is long? The overwhelming answer would be that the bears are terrified to be short. The harder trade to make at this juncture would be shorting this market vs. going long. Just random thoughts..."
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