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 Seen by some as a contrarian indicator of future stock market
performance, a weekly poll of individual investors showed positive
sentiment for stocks remained below average for the 16th straight
week despite a solid uptick in optimism.
The last time bullishness in the American Association of Individual
Investors' sentiment survey remained below average for so long was
in August 2012.
Many professional investors view enthusiasm among do-it-yourselfers
as a warning that the market may be overheating. Conversely,
widespread caution is often taken as evidence that stock prices are
well grounded and not forming a bubble.
"The market climbs a wall of worry and if there's some bearishness
out there it means there's potential buying power on the sidelines
that could come back into the market," said David Joy, chief market
strategist at Ameriprise Financial in Boston, where he helps oversee
$815 billion in assets under management.
Indeed, individual investors have pulled $56 billion from U.S.
equity funds in the past 26 weeks, according to EPFR Global, which
tracks fund-flow data.
The relative uptick in optimism detected in the latest AAII survey
comes as Greek and euro zone officials make last-ditch efforts to
avert a debt default, with a key meeting set for Saturday.
Wall Street's reaction ahead of previous deadlines in Greek
negotiations has been muted compared to European financial markets,
but with Greece at risk of missing a crucial repayment to the
International Monetary Fund on Tuesday, some U.S. investors are
increasingly wary.
"We're coming up on zero hour for this crisis and it may well be
that a number of investors will prefer to wait on the sidelines for
the dust to settle,” said Alan Gayle, senior investment strategist
at RidgeWorth Investments in Atlanta, Georgia, which has $50 billion
in assets under management.
While Greece's financial instability and the possibility that the
U.S. Federal Reserve could soon raise interest rates remain risks,
Gayle, Joy and others said they still expect U.S. stocks to go
higher over the medium term.
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Several data points next week will give fresh reads on the health of
U.S. consumers in June as the Fed weighs when to increase rates.
On Thursday, Labor Department data is expected to show nonfarm
payrolls increased by 232,000 in June, with the unemployment rate
edging down to 5.4 percent from 5.5 percent in May. Consumer
confidence is due on Tuesday and domestic car sales are due on
Wednesday.
"The production side of the economy is doing okay," said Joy. "It's
the consumer sector that's most important for us right now. And of
course, Greece."
The strengthening economy suggests the Fed could raise interest
rates this year even as inflation remains well below the U.S.
central bank's 2 percent target. Many economists expect a rate hike
in September.
The S&P 500 and tech-heavy Nasdaq hit all-time highs in recent
months, with markets bouncing back and forth in a limited range
since around February as many investors fixate on the Fed.
Trading might be brisker than usual on Monday and Tuesday as some
pension funds and mutual funds buy and sell shares to rebalance
their portfolios ahead of the end of the quarter.
U.S. markets will be closed on Friday ahead of the Fourth of July
holiday.
(Reporting by Noel Randewich; Edited by Linda Stern and Meredith
Mazzilli)
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