Survey Shows Investor Sentiment Highest Since 2007
January 22, 2010
A Reuters/University of Michigan survey released this morning showed that more investors believe the stock market is poised to rise in the coming year than at any time since the end of 2007. "The means probability of stock price gains during the year ahead stood at 46.9 in all surveyed households, the highest since the 51.3 mean for the last quarter of 2007." In households in which more than $25,000 in stock is owned the figure stood even higher at 53.0, the highest since a 58.7 mean was recorded by this group in the fourth quarter of 2007.
Meanwhile, the CBOE Volatility Index (VIX), a Wall Street sentiment index, recently traded at a 19-month low, providing evidence that the bullish sentiment may be overextended.
And despite any positive sentiment, the stock market has taken a pounding this week. On Wednesday and Thursday the Dow Jones Industrial Average recorded its biggest two-day drop–336 points, or 3.1 percent–since last June. The Dow and other indexes were seeing further declines in Friday morning trading, but more moderate, and with some hints that we could even see green.
This week's declines have come despite generally upbeat earnings results from most companies reporting. Many analysts suggested that positive earnings were already reflected in share prices so investors were selling on the news. However, selling pressure was also spurred by new banking rules proposed by President Obama that would restrict their ability to engage in proprietary trading in the stock market.
We're not at all surprised by this week's action because we expect this year's Wall Street ride to be a "bumpy" one. And we certainly don't believe that this portends the start of a major bear market. However, it has provided ammunition to the oracles of "doom & gloom," and "end of the financial world" as we know it, because they're certainly trumpeting the news with vigor and their headlines get more dire by the hour.
