Insight Reveals Bears Could Cause Stock Market to Recover
An in-depth look to the bearish transformation of investors provides some insight as to the potential for a market recovery. TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
In advanced stock trading and investing, you need to watch for investor sentiment. It decides much of how the stock market reacts. On investor sentiment depends the rise and fall of many stocks, which in turn can help you make better decisions. Investopedia quotes the Wall Street Journal reporting that the shift of sentiment in Wall Street investors from the extremes of bullishness to a bearish feeling is a positive sign. There were many concerned about the sudden rise in excessive optimism by the end of a bull market that lasted 9 years. The extreme volatility in the markets has given investors a great deal of shock this year, and that led to the US equities starting April in the worst possible manner since the Great Depression.
Factors Causing the Bearishness There were various factors for the bearishness. The American Association of Individual Investors states in a survey that fears regarding a possible trade war, increased government regulation on Facebook ($FB) and other tech giants, and the government’s further tightened monetary policy has caused pessimism to surge the highest in over seven months. This gloomy outlook of the survey respondents was with regard to their market outlook for the coming six months. Back in January, the participants of the survey were the most bullish in more than seven years.
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Fear Reaction at Work? Extending from late 2017 to January, there was a great deal of optimism which caused investors to invest their money in equity funds. According to the Bank of America Merrill Lynch, this brought the cash amount that was held by institutional managers to the lowest in five years. On April 9, 2018, the major indexes rose sharply in trading at the NYSE, as of one ‘o’ clock in the afternoon. They were well below their highs of 2017 though. There’s an extreme kind of fear reaction at work here. The S&P 500 Index did lose 7.8% of the value it held since the high last year. The Dow Jones Industrial Average (DJIA) sank 9.1% while the Nasdaq Composite Index fell by around 7.5%. This fear reaction, according to BNP Paribas’ Edmund Shing, is a contrarian indicator to feel bullish.
Sharp Rise in Volatility Plays into US Equities The late 2017 mood has experienced a kind of turnaround, and through most of January the Cboe Volatility Index was up to 95%. This volatility brought cheaper valuations to the stocks and brought down the investor exuberance. Analysts now believe that the conditions play into US equities. With a background of strong economic growth, US equities are likelier to gain. Equity valuations have decreased significantly though they are higher than what their historical averages have been. With the lower investor optimism, equity markets could easily make more
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gains, provided the global growth continues to be healthy, according to JP Morgan Asset Management’s Mike Bell. This close observation and insight by experts should help you make the right stock trading decisions. There is also the other side to this positivity. According to Scott Minerd of Guggenheim, stocks could sink by 40%, and the brunt of the damage would occur sometime in the latter part of 2019 and 2020. So by listening to both sides of investor and analyst sentiment, you can balance out the viewpoints and make your decisions.
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