What a difference a year makes. Last week’s mini decline would likely have snowballed into a longer steeper decline in the 2011 bear market but its 2012 and we’re undoubtedly in quite a strong bull market, where declines are short and quick.
But last weeks mini decline had a big effect on investor sentiment as many investors changed their tune flipping from overly bullish to bearish, hence we’ve reverted to a less defensive posture hoping the mini decline was enough to add fear back into the markets.
As of March 13th, Investors Intelligence had 43.6% of advisors they tracked in the bullish camp down from 54.8% on February 14th. This recent reading was the lowest since November 1st. The American Association of Individual Investors (AAII) in their weekly poll had the bullish contingent at 42.4% down
from 51.6% on February 10th.
The Dow, S&P 500, NASDAQ and Wilshire 5000 plus the Advance Decline line all made new highs this week. The laggard, curiously enough is the Russell 2000 which is trying to break through formidable resistance. I believe its a matter of time before this index breaks through to a new high as well
A popular investment trend over the past three years has been to lock in high dividends to offset the miniscule yields in bonds and money market funds. This trend can work well as long as interest rates are stable but with an expanding economy Treasury bonds are beginning to appear headed to a Bear Market. This is not unexpected but in fact was one of my 5 surprises for 2012. Interest rate sensitive mutual funds and stocks may be vulnerable now.
An interesting bit from Ned Davis Research is that the low volatility we’re experience now is likely a good thing. 2012 is only the 9th time since 1928 where the S&P 500 has started the year not experiencing a 1% decline in the first 40 days of trading. The average gain for the remainder of the year was 18.4%. There was only one March to December period with a loss, 1966.