rollercoasterWhen it comes to the American Association of Individual Investors (AAII) Sentiment Survey, respondents tend to be more bullish than bearish about U.S. stock markets. The survey’s historical averages are:

  • 5 percent bullish
  • 0 percent neutral
  • 5 percent bearish

As the second quarter of 2018 began, investors were feeling less optimistic than usual. (About 36.6 percent were bearish and 31.9 percent bullish.) Their outlook was informed by a variety of factors, according to an early April article in The New York Times, which said:

“First there was the risk that the economy might be growing too fast, which could prompt central banks to hike interest rates sooner than expected. Then there was the risk of a trade war ignited by the White House imposing tariffs on certain products, an action that quickly prompted countries like China to erect trade barriers of their own. Next came the threat of a government crackdown on technology companies, after revelations of their misuse of customer data.”

As the quarter progressed, investor optimism increased on signs of economic strength. In early June, CNBC reported the economy appeared to be “operating close to full employment, with an unemployment rate at 3.8 percent, inflation still hovering at or below 2 percent, and business and consumer confidence strong.”

Robust corporate earnings helped spur optimism, too. FactSet Insight wrote, “The S&P 500 reported earnings growth of 25 percent for the first quarter – the highest growth since Q3 2010.” In mid-June, the AAII survey showed 44.8 percent of respondents were feeling bullish, 21.7 percent were bearish, and 33.5 percent were neutral.

As talk of tariffs and trade wars resumed, investor optimism plummeted. By the end of June, just 27.9 percent of respondents were bullish and more than 39 percent reported they were feeling bearish. AAII explained:

“Many – but not all – individual investors anticipate continued volatility and/or think that the current political backdrop could have a further impact on the stock market. Trade policy is influencing some individual investors’ sentiment as well. While many approve of the Federal Reserve’s plan to continue gradually raising interest rates, some AAII members are concerned about the impact that rising rates will have. Also influencing sentiment are valuations, tax cuts, earnings growth, and economic growth.”

Despite a downturn in bullishness, major U.S. stock indices moved higher last week.

screenshot 7.2.18

* These are the general views of Jonathan DeYoe and they should not be construed as investment advice for any individual.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* The original “Weekly Commentary” was prepared by Peak Advisor Alliance. Jonathan DeYoe is a member of Peak Advisor Alliance and adds, subtracts and edits before publishing.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* “What a Rollercoaster of a Quarter!”

Sources:

http://www.aaii.com/sentimentsurvey (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-09-18_AAII_Sentiment_Survey-Results_for_Week_Ending_7-4-2018-Footnote_1.pdf)
http://www.aaii.com/sentimentsurvey/sent_results (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-09-18_AAII_Sentiment_Survey-Past_Results-Footnote_2.pdf)
https://www.nytimes.com/2018/04/02/business/stock-markets-technology-trade.html
https://www.cnbc.com/2018/06/08/gdp-for-second-quarter-on-track-to-double-2018-full-year-pace-of-2017.html
https://insight.factset.com/earnings-insight-q118-by-the-numbers-infographic
https://www.npr.org/sections/thetwo-way/2017/06/01/531048986/so-what-exactly-is-in-the-paris-climate-accord
https://www.iea.org/geco/emissions/
https://www.scientificamerican.com/article/global-co2-emissions-rise-after-paris-climate-agreement-signed/
https://www.washingtonpost.com/news/energy-environment/wp/2018/06/01/trump-withdrew-from-the-paris-climate-plan-a-year-ago-heres-what-has-changed/?noredirect=on&utm_term=.c673c6f445ec
https://www.economist.com/business/2018/07/05/shortages-of-carbon-dioxide-in-europe-may-get-worse (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-09-18_TheEconomist-Shortages_of_Carbon_Dioxide_in_Europe_May_Get_Worse-Footnote_10.pdf)
https://books.google.com/books?id=YvyUAwAAQBAJ&printsec=frontcover&dq=The+heart+of+emerson%27s+journals&hl=en&sa=X&ved=0ahUKEwinmq3P2IrcAhXJx4MKHcu1DcoQ6AEIKTAA#v=onepage&q=The%20heart%20of%20emerson’s%20journals&f=false (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-09-18_Book_Excerpt-The_Heart_of_Emersons_Journals-Footnote_11.pdf)