The Markets are Climbing a Wall of Worry
21. July 2009 by Dan Walkow, CFA, CMT.
If history is any guide when investor sentiment is bearish, as it is now, markets tend to mark higher climbing a wall of worry.
According to a recent survey by Merrill Lynch here are a few take-aways:
- The latest readings from last weeks AAII survey show that small investors remain overly bearish.
- In terms of asset allocation, investors remain fairly risk averse. Bonds and cash are still heavily favored while requities remain an underweight. This likely represents a scenario where investors remain under invested in stocks and over invested in risk averse assets.
- Alternative assets are more of a mixed bag. Commodities overall remain in no mans land.
- Gold and oil both remain neutral holdings for most fund managers.
- There is no conviction; investors finding lots of excuses to do nothing. Everyone expecting a further modest equity correction; surprise for investors would be summer rally or a real summer crack in markets.
- Meanwhile, individual investors remain fairly bearish. The latest AAII bullish poll came in at 28% which is a level that has generally favored the long equity trade.
As alwaus, it rarely pays to be in the majority when it comes to investing. This market has a ways to go yet.