Ordinary investors are turning bullish

Investor sentiment has been muted in 2023. With the S&P 500 having gained 27 per cent since October and at its highest level since April 2022, is investor wariness beginning to dissipate?

Professional investors are less bearish but sentiment remains “stubbornly low”, according to Bank of America’s latest monthly fund manager survey. That’s echoed by a recent JPMorgan note, which says cash or cash-like instruments account for almost 30 per cent of their clients’ investable assets. “That’s a lot,” it says, “even compared to a year ago”.

However, retail sentiment may be turning, according to the weekly American Association of Individual Investors (AAII) polls. Bearishness has fallen to its lowest level since July 2021, with bulls outnumbering bears for two consecutive weeks. In itself, that’s “historically unremarkable”, says Hi Mount Research’s Willie Delwiche, but it’s happened only one other time in the past 18 months, following the “most protracted period of pessimism” in the survey’s history.

[ Is the bear market officially over? ]

[ Bank of England shocks with half a percentage point rate hike to combat stubborn inflation ]

Note that near last year’s market bottom, there were three times as many bears as bulls, with sentiment hitting extremes unseen since March 2009. Now, 27 per cent later, investors are turning bullish.

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Most people find it hard to follow Warren Buffett’s dictum about being greedy when others are fearful. Human nature, it seems, just isn’t conducive to good investing.