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The latest inflation data made way for a slight increase in bearish sentiments among stock investors this week.
A total of 21.9% respondents of the American Association of Individual Investors, or AAII, Sentiment Survey said they think the market will trend down in the next 6 months, compared to 21.8% of those polled last week.
The figure is still far behind the 1-year bearish high of 50.3%, and the historical bearish high of 31.0%.
The percentage of surveyors who felt optimistic about where the market is headed in the next 6 months came in at 45.9%, down from 51.7% last week.
However, neutral sentiments saw the biggest jump this week, with 32.2% of the investors seeing no change in the market direction, compared to 26.5% a week ago.
The consumer price inflation slightly accelerated in February from the previous month, but was in-line with expectations. With inflation appearing to stabilize above the Federal Reserve’s 2% goal, expect the central bank “to keep the Federal Funds rate at 5.25% to 5.50% in both the upcoming and June meetings,” said Seeking Alpha analyst Chris Lau.
The producer price inflation rose from January, and came in hotter than expected. Retail sales advanced last month, but the increase was smaller than expected.
The bond market is still pricing the three cuts in 2024 and anchored long term inflation expectations. We will see either a sharply slowing economy soon, or significantly higher interest rates, with 10Y yields going over 5%, SA author Damir Tokic said.
The S&P 500 Index (SP500) advanced 1.2% during the course of the last five trading days, while the Dow Jones Industrial Average Index (DJI) rose 0.99%. Meanwhile, the NASDAQ Composite Index (COMP:IND) increased by 0.94%. The major market averages opened the session lower on Thursday.
The equity rally that began after the October lows of 2023 does not reflect conditions of “boom and bust” cycles, known as bubbles, where there are huge gaps between share prices and their values or the significant use of leverage, said Savita Subramanian, head of U.S. Equity & Quantitative Strategy at BofA Global Research.
So far, March has been characterized by wave after wave of positive analyst earnings revisions, since fourth-quarter earnings surprises were so strong. This market’s current “melt-up” is likely to persist, since there is plenty of fuel ($8.8 trillion in money market assets on the sidelines) that can be tapped to move back into the stock market over the next several months, according to SA contributor Louis Navellier.
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