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 Since hitting record levels two weeks ago, the U.S. stock market has
struggled for direction, and investors said the next several
sessions might prove no better. A run of better-than-expected
economic figures failed to boost sentiment and instead renewed focus
on whether the Fed will begin to raise short-term lending rates
before long.
At the moment, individual investors lack any particularly strong
inclination to buy or sell. Investors polled by the American
Association of Individual Investors have increasingly said they are
"neutral" on the market, suggesting uncertainty about where stocks
are going.
The most recent AAII survey showed 48 percent of investors polled
have neutral outlooks for the market for the next six months, while
27 percent are bullish and 25 percent are negative. The bullish
figure has been below 30 percent for five weeks, the longest since
2003, while the neutral figure has exceeded 45 percent for nine
weeks, longest in the 28-year history of the survey.
One looming concern is the steady increase in investors using
borrowed money to buy stocks. Total margin debt hit a record $507
billion in mid-April, according to the most recent figures from the
New York Stock Exchange, trending higher along with the S&P.
"There's complacency, more complacency than I'm comfortable with. It
makes me nervous," said Leo Grohowski, chief investment officer at
BNY Mellon Wealth Management in New York. "Market participants don't
seem prepared for an uptick in volatility, which is consistent with
high levels of margin debt."
High levels of margin debt do not necessarily mean a selloff is
coming. But they can make selloffs more violent should volatility
pick up.
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"Margin debt is usually at record highs when markets peak, but it’s
also usually at record highs in the months and years leading up to a
market high," said Paul Hickey of Bespoke Investment Group.
An increase in market volatility could quickly worsen market
sentiment, which could become amplified by high margin levels, they
warned. The market has been in a trading range for several weeks,
and some worry that a break lower could be violent.
About 280,000 jobs were added in May, the largest gain since
December and well above consensus forecasts. Economists largely
expect the Fed will begin raising rates by September, and this
number solidified that expectation for many.
"The market is addicted to the Fed's liquidity, and this certainly
puts more ammunition in the Fed's plan to start lift-off in
September. It makes sense that the market would fall off on that,"
said Mark Luschini, chief investment strategist at Janney Montgomery
Scott in Philadelphia.
(Reporting by Noel Randewich and Ryan Vlastelica; Editing by
Meredith Mazzilli)
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