Tuesday, July 19, 2011

What Happened to Fear?

"There are a lot of worries out there, but people aren't very worried."

No, Yogi Berra, has not been brought on board as a guest blogger.

This is just the best way to explain the strange paradox of the U.S. Equities markets in July of 2011.

There has seemingly been a daily trickle, if not stream, of negative economic news coming from countries that have great soccer teams and dreadful balance sheets (e.g., Ireland, Greece, Spain,
Portugal, Italy... to be continued).

Yet, MarketPsych's sentiment indicators show that worry/fear were actually much higher earlier in the year.

That's not to say that investors aren't emotional.

Investor sentiment is worse than it has been since 2009, yet market performance is still
going strong. This divergence is noteworthy... and strange (see below).

The red line represents Investor Sentiment since the start of 2010. The gray/green/red line represents the peformance of the S&P 500 Index.

Weird, right?

Maybe this unusual split is because fear does not appear (for a change) to be the dominant emotion.

So if fear isn't driving sentiment... what is?

Our proprietary tools (designed by Dr. Richard Peterson and available at http://www.marketpsychdata.com/) indicate the following:

ANGER: People are ticked off at the forces behind the market, and likely still bitter about the effects of the banking crisis in '08. TARP and the political wrangling over the debt ceiling in the U.S. cetainly isn't helping assuage this feeling.

DISGUST: Disgust is often felt in reaction to things that are unclean. That's a good way of describing investors emotion. Investing just seems to be a dirtier business than it used to be. And they are revolted by it.

LACK OF TRUST: People are more cynical about the equities markets, and less likely to believe the authority figures are willing or even capable to do what they pledge.

So investors are "Mad as hell"... but will they "take it anymore"?

So far, the answer is, "yes".

But doing so appears to have created a great deal of emotional tension.

Happy Investing.

And hey... let's be careful out there.

-Dr. Frankenstocks

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