According to a MarketWatch article today, a survey of 1,044 financial advisers by brokerage firm Charles Schwab & Co., taken from July 18-29 (a time of market weakness and turmoil), showed two-thirds expect higher stock prices over the next 6 months.
About six in 10 respondents believe the Standard & Poor’s 500 Index (last: 1,466.79) will be up six months from now by less than 10%, while 6% predict the U.S. benchmark will be up more than 10%.
Still, their optimism waned from January, when almost 80% of advisers thought — correctly, as it turned out — that the S&P 500 would rise in the first six months of the year.
Favorite sectors – energy, materials and industrials:
Advisers are particularly hopeful about energy stocks, with 44% flagging the sector as the best potential performer for the next six months, versus 21% who said the same in January. About 57% of advisers say it’s “extremely” or “somewhat” unlikely that energy prices will slump into the winter.
The outlook for the materials and industrials sectors also got a boost, with about one in five advisers counting these as top places to put money over the next six months.
Although we tend to take surveys with a grain of salt as sentiment indicators, the Schwab poll bears watching. It also adds a shred of support to our contention that investors remain overly confident and complacent, especially with regard to poor fundamentals. That “the economy is sound” is still trotted out as gospel, is further evidence that the “wall of worry” is a fantasy of the bulls.
Playing devil’s advocate to this position: the most recent Investor’s Intelligence poll shows 37.4% bears, the highest percentage of pessimists since last summer (prior to a 3,000 point rally in the DJIA). And the latest (Sep 3) issue of Fortune has a black cover with the ominous title “Market Shock 2007.”
Throught the years, we have found that:
- Sentiment works best as a contrary indicator at extremes, and not as well in between.
- Statistics often lie. Some of the best indicators of sentiment are qualitative, i.e. skyscrapers, conspicuous consumption, merger madness, hubris, cocktail banter, etc.
- The best quantitative indicators measure “what they do,” not “what they say.”
As for #3, the most recent mutual fund data from the Investment Company Institute (as of June 30) show equity fund cash levels at 3.5%, an all-time low.