The Markets are Climbing a Wall of Worry

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.

This entry was posted on 21. July 2009 at 06:35 and is filed under Investor Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.