Sir
John Templeton once said: “Bull markets are born on pessimism, grow on
skepticism, mature on optimism, and die on euphoria.”
If
he was right, investor sentiment seems to support the idea the bull market may be
around for a while. The American
Association of Individual Investors’ most recent poll indicated investors
aren’t feeling very optimistic:
·
20 percent
of investors were bullish – fewer than in the previous poll, and far lower than
the historic average of about 39 percent.
·
47 percent
of investors were neutral – fewer than in the previous poll, and far higher
than the historic average of about 31 percent.
·
33 percent
of investors were bearish – more than in the previous poll, and slightly higher
than the historic average of about 30 percent.
Investors
have had plenty to worry about. U.S. economic growth appears to be slowing
which has created questions about the wisdom of a possible Fed rate hike. “Liftoff,”
as some have called the much anticipated interest rate change, could also
affect the global economy. The World Bank and International Monetary Fund have
cautioned against a 2015 increase suggesting, “…a premature rate hike in the United
States would exacerbate volatility in the world’s currency markets and hurt the
global economic recovery.
The
Fed isn’t investors’ only worry. Last week, the International Monetary Fund
walked out of Greek debt negotiations. The BBC
reported:
“Greece
is seeking a cash-for-reform deal, to avoid defaulting on a €1.5bn debt
repayment to the IMF…
The EU and IMF are unhappy with
the extent of economic reforms the Athens government is offering in exchange
for the release of a final €7.2bn (£5.3bn) in bailout funds. Their bailout deal
with Greece runs out at the end of June.”
If
negotiations fail, Greece may be forced to leave the Euro which the BBC said could make the country a pariah
in international markets. U.S. stocks finished the week higher despite losing
value when Greek debt negotiations stalled.
and the
survey says… September! The Wall Street Journal has been out on the street asking economists
when they think the Federal Reserve is likely to begin increasing the Fed funds
rate. Unlike Jay Leno’s interviews with average people on the street, not one
economist asked, “What’s the Fed funds rate?”
Although a few diehard economists (6 percent)
believe a June or July increase is possible, the rest expect liftoff in
September or later. The Journal
explained the circumstances that have gotten us to this point:
“The Fed has kept short-term interest rates
pinned near zero since December 2008 to support the U.S. economy through a
financial crisis, recession and slow recovery. Officials have signaled they
expect to begin raising rates sometime this year. The central bankers say [they]
want to see continued improvement in the job market, and they want to be
“reasonably confident” that too-low inflation will soon move back toward their
2 percent annual target.”
Employment has been moving in the right
direction and Fed estimates suggest inflation may reach 1.8 percent during
2016, so what’s the hold up? Some Fed officials are concerned the American
economy has lost momentum, and they’re not alone.
When the Journal
asked analysts to estimate gross domestic product (GDP) growth for 2015, 2016, and
2017, their June estimate was 2.1 percent. That’s considerably lower than their
March estimate of 2.9 percent. The Fed’s March estimate of GDP growth in 2015 was
2.5 percent. A revised June growth projection should be out this week. If
expectations deteriorate, it’s possible the Fed may decide rates shouldn’t go
much higher.
Analysts’ estimates for the 2015 Fed funds
rate declined to 0.58 percent from 0.83 percent in March indicating they
believe the Fed may not raise rates as much as had previously been expected.
Weekly Focus – Think About It
“Public opinion is a permeating
influence, and it exacts obedience to itself; it requires us to drink other
men's thoughts, to speak other men's words, to follow other men's habits.”
--Walter
Bagehot, British journalist
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