Join        Login             Stock Quote

Most Surveys And Market Sentiment Indicators Are Flashing Yellow-To-Red

 February 20, 2013 11:43 AM

Heavy Central Bank Intervention Has Skewed Traditional Market Signals

The problem with current market forecasts is that the action has moved beyond the view of most investors, mostly because heavy central bank intervention in yield curves has made currencies the more accurate gauge of macro health.  Currencies however are notorious for trading away from fundamentals for years at a time and unlike debt, there is no CDS market for a second opinion.

Investor sentiment has recovered even faster than stock market prices, and investor surveys and most sentiment indicators are indicating caution ahead as short-term market sentiment virtually ignores the bad news. 

[Related -The April 29 Gold Triangle Breakout Update]

Investor Sentiment Readings

(1) State Street Investor Confidence Index

State Street Global Markets tracks what they call the State Street Investor Confidence Index. For the January 2013 reading, Global ICI rose for a second consecutive month, increasing by 5.4 points from December's revised reading of 81.4 to finish at 86.8. The increase was driven by North American institutions, whose confidence rose 7.8 points from December's (revised) level of 78.5 to reach 86.3. Institutional investors in Asia also felt more optimistic, and this  pushed the Asian ICI up from 87.1 in December to 91.0 in January, an increase of 3.9 points. In contrast, risk appetite among European institutional investors extended its decline, falling 4.5 points from a (revised) reading of 94.1 in December to settle at 89.6.

[Related -Sell In May, But It Is A Presidential Election Year]

(2) Bloomberg Survey

International investors are the most bullish on stocks in at least 3 1/2 years, with close to two- thirds planning to raise their holdings of equities during the next six months. 53% of respondents to the Bloomberg Global Poll also say equities will offer the highest return in the next year. That's a 17 percentage point jump from the last poll in November and the most since the quarterly survey of investors, analysts and traders who subscribe to Bloomberg began in July 2009.

Behind rising stock prices are ebbing concerns about Europe and the perception America is in its best shape in two years. "There's a great sense of relief we dodged a lot of bullets in 2012 -- we didn't go off the fiscal cliff in the U.S., Europe didn't have a meltdown and China didn't have a hard landing," Perceptions about Japan's prospects have brightened considerably following the election of Shinzo Abe as prime minister last month. Abe has pledged to revitalize the Japanese economy through both fiscal and monetary means, a program generally viewed optimistically by 54 percent of respondents.

(3) BoA Merrill Monthly Global Investor Survey

The BoA ML February survey shows confidence in a strong global economic outlook has consolidated while investors have indicated that they see support from current equity valuations after the recent rally. A net 59% percent of investors believe the global economy will strengthen in the year ahead, for the fourth consecutive month of rising sentiment. The outlook for profits has improved with a net 39 percent of the panel saying that profits worldwide will improve in the coming 12 months, up from a net 29 percent in January. The desire for higher capital expenditure is strong with 48% of investors saying that capex is the best use of corporate cash – the highest reading since April 2011.

Investors continue to perceive value in equities in light of strong market performances of early 2013. A net 13 percent of global investors still say that equities are under-valued. At the same time, a net 82% say bonds are overvalued, the second-highest level recorded by the survey with the highest coming at the peak of the European sovereign bond crisis in 2012.

Risk appetite has also remained steady. Allocations towards equities have held at the highs reached in January. A net 51% remain overweight global equities. Within equities, sector allocations highlight a bias towards a measured easing of risk appetite with a shift towards defensive assets. Pharmaceuticals, a traditional defensive sector, has returned to the number one sectoral pick for global investors, having been third in the pecking order a month ago. The proportion of investors overweight the sector rose to 27 percent from 11 percent in January.

 Cyclical sectors become less popular. The biggest month-on-month faller was Technology, which saw a negative 12 percentage point swing in the number of investors overweight the sector. Materials also suffered a double-digit fall in the percentage of overweights. The number of respondents overweight Technology, Industrials and Energy also fell.

Sentiment towards Japanese equities normalizes.

In regional allocations, Japanese equities continue to benefit from a positive shift in sentiment by global investors. A net 7% are now overweight Japanese equities, up from a net 3% in February. This is a big swing from a net 20% underweight last December.  A net 29% of Japanese investors say they are underweight cash, up from a net 5% one month ago. Automotives, Technology and Banks are the three most popular sectors.

Global investors indicate their positive view towards Japan will continue. A net 21% say that the outlook for corporate profits in Japan is more favorable than for anywhere else, up from a net 4% in January. Accordingly, a net 9% say Japan is the region they would most like to overweight. Two months ago, a net 17% said Japan was the region they most wanted to underweight, underscoring the big swing in sentiment since Shinzo Abe and the LDP returned to power. A big factor is the weakening JPY. Four out of ten respondents to the global survey say that USDJPY rising to 100 is likely to happen before a U.S. debt downgrade, a Spanish bailout or gold breaking through $2,000 per ounce.

Sentiment Indicators Flashing Yellow/Red

Stock prices usually move the fastest when global investor surveys such as above show sharp reversals. But most market sentiment indicators are flashing yellow-red, indicating increased risk of a short-to-medium term market correction, which investors today will tell you they would like to see becoming more aggressive. When the correction does come, we'll have to see how much of this professed bullishness evaporates. 

a) BoA ML Bull & Bear Index Near Maximum Bullish

Hat Tip: Business Insider

b) Growing Gap Between Investor Sentiment and Economic Surprises

Hat Tip: Business Insider

c) Credit Suisse Sentiment Indicator at Two-Year High

Hat Tip: Business Insider
Hat Tip: Big Picture
e) CNN Fear & Greed Index
Source: CNN

f)  Barron's Market Sentiment

g) Market Edge Investor Sentiment

d) Overbought & Oversold Markets



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageTackling China's Debt Problem: Can Debt-Equity Conversions Help?

China’s high and rising corporate debt problem and how best to address it has received much attention read on...

article imageWill Job Growth Kill The Bear-Market Signal For Stocks?

It’s all about jobs now. Actually, it’s always been about jobs. But the stakes are even higher—perhaps more read on...

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Why We're So Unhealthy
More Articles on: Economics Data

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.