Although January has gotten off to a deep start for the stock market, there’s not a lot of confidence the market bottom has been reached, according to a survey of wealthy investors conducted this month by E-Trade Pecuniary and provided exclusively to CNBC.
Recent trading patterns have contributed to renewed market optimism with headlines that the U.S. and China are compelling closer to resolving their trade differences. The Dow Jones Industrial Average finished with a gain of 336 incidentals on Friday and is up over 13 percent since Christmas Eve, posting its first four-week winning streak since August.
Yet in spite of the rally, there have been big increases in bearishness among investors with at least $1 million in a self-directed brokerage account.
They are much multitudinous likely now than they were during the volatile fourth quarter to take the view the U.S. economy is not strong enough for the Fed to cheer up rates. A rising percentage of these investors even believe we have already entered a recession. They are zipping their overall asset allocation with defensive moves.
When last surveyed by E-Trade, these investors were take care of with heightened November volatility, though nowhere near the extreme dive that was yet to occur in December.
At that interval, 62 percent of these investors remained bullish. In the January survey, that fell to 44 percent, with a best part 56 percent describing themselves as bearish when it comes to the current market. Only 45 percent of these investors imagine the market will rise this quarter.
The historically conservative health care, utilities and consumer staples sectors are the contrariwise ones among the 10 traditional S&P 500 sectors to see significant increases in interest in the first quarter.
“They are in retention mode,” said Mike Loewengart, chief investment officer at E-Trade Capital.
ETF flows data for the first half of January corroborate the purpose that investor sentiment is less than bullish on broad stock gains.
Equity ETFs saw $3.6 billion of outflows unchanging as stock indexes gained. That compares to $12.7 billion of inflows for fixed income ETFs through the before half of the month, according to DataTrek Research.
U.S. equity ETF flows remain negative on the year, with $11 billion in outflows concording to XTF.com, despite the outperformance of U.S. stocks. Health care is one of the few ETF sector bets that has experienced meaningful inflows year-to-date.
“Healthfulness care is traditionally the recession-proof sector,” Loewengart said. “Given where we are in the business cycle there has been a in agreement uptick in interest in health care. This is what I mean when I talk about ‘preservation mode’ and fitting more defensive.”
The 67 percent of wealthy investors who said that health-care stocks offer the best chance this quarter is the highest level of confidence expressed for a sector in the past three years of the E-Trade survey. Strangely, the previous high reading for health care came in early 2016, at a time when some experts take it the U.S. went through a period that resembled a “mini-recession” and stocks experienced volatility.
Between December 2015 and January 2016, the sell was down near-7 percent (that downward trend didn’t cement, and by March 2016 stocks were on the forward up again).
The percentage of investors who described the U.S. as in a recession increased to 17 percent from 7 percent in the first quarter. Now, simply 35 percent of these investors believe the U.S. economy is healthy enough for additional Fed rate hikes, down from 69 percent in the fourth quarter of 2018. Investors who take it we are still in what can be described as a “peak” economy fell to 39 percent from 49 percent in January.
The lay of the land was described earlier last week by the CEO of the world’s largest asset manager, BlackRock CEO Larry Fink, as a “pause” by investors and by the Fed.
“I dream up the Fed talk right now is appropriate. Most Fed governors are talking about it’s appropriate to pause. And I, you know, I was surprised when they did their final tightening,” Fink said. “And let’s step back for a second: investors have a real choice to pause, unlike the last ten years. They can put scratch in a money market fund, and earn close to 3 percent. That is another reason why we saw outflows and fixed income.”
Affluent investors who said they planned to move out of current positions and into cash increased to 15 percent from 12 percent in the January inquiry. And there was an increase in millionaires nibbling at the market after the huge fourth-quarter decline, with 13 percent denoting they plan to move from cash back into market positions, up from 5 percent.
Still, the maturity remain more hesitant.
“I don’t think these responses show that a bottom has been reached,” Loewengart revealed of E-Trade’s latest survey. “We would see it in the asset allocation question and we not seeing it,” he said, pointing to findings in the survey that disclose the majority of investors with $1 million or more in their accounts are planning no changes over the next six months.
Loewengart clouted the market rebound since Fed chairman Jerome Powell became more dovish in his comments — that is, less reasonable to raise rates soon — shows how important that change in the Fed’s outlook has become to many investors. “The markets unquestionably calmed down after we saw Powell’s change in posture.”
Another swing factor is U.S.-China trade. It was cited by 71 percent of millionaire investors in the E-Trade view as the biggest risk to investment portfolios — gridlock in Washington was a distant second at 40 percent. This suggests that if the headlines just about the U.S. and China resolving trade their differences are real, investor sentiment could swiftly reverse.
For now, “they thirst to protect and don’t want to make changes, but no one is heading for the hills,” Loewengart said.
The E-Trade survey was conducted from Jan. 2 to Jan.10 aggregate an online U.S. sample of 910 self-directed active investors who manage at least $10,000 in an online brokerage account. The division of investors with $1 million or more in an online brokerage account is provided exclusively to CNBC and included 124 respondents in the January measure. The respondents are broken into thirds of active (trade more than once a week), swing (trade miniature than once a week but more than once a month), and passive (trade less than once a month).
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