Investors’ pessimism lessens as economic data leans in favor of rate cuts
Investors’ pessimism about the short-term outlook for the stock market decreased this week, as recent economic data stoked hopes of interest rate cuts.
A total of 26.1% of respondents of the American Association of Individual Investors, or AAII Sentiment survey, said they think the market will trend down in the next six months, compared to 28.3% last week.
Neutral sentiment also increased this week, with 32.2% of the investors polled by AAII seeing no change in the market direction. The number was 27.2% a week ago.
May’s personal consumption expenditures (PCE) price index, widely seen as the Federal Reserve’s preferred inflation gauge, eased in May, providing some relief to market participants.
The U.S. Federal Reserve officials at their June monetary policy committee meeting said they were looking for more favorable data on inflation to gain further confidence that things were moving in the right direction, with the committee acknowledging that there had been “modest further progress” towards the 2% inflation target.
Fed chair Jerome Powell’s statement on inflation also calmed sentiments.
However, weak earnings by some heavyweight stocks led to a decrease in the number of investors feeling optimistic about the short-term outlook for the stock market.
A total of 41.7% of respondents showed optimism about where the market is headed in the next six months, compared to 44.5% last week.
Both bullish and neutral figures were above the historical averages of 37.5% and 31.5%, respectively.
During the week, the Wall Street digested Nike’s (NKE) shocking warning that sales will decline 10% in its current quarter, leading to the sportswear giant’s stock falling over 10% in after-hours trading.
Micron shares tumbled 7% in extended-hours trading on Wednesday after the memory chipmaker issued guidance that was in-line with estimates, overshadowing a stronger-than-expected third-quarter.
Similarly, drugstore chain operator Walgreens Boots Alliance (WBA) also fell over 5% on Thursday after lowering full-year outlook due to a tough overall backdrop for retail.
Moreover, investors’ eyes were also glued on the first U.S. presidential election debate during the week between President Joe Biden and former leader Donald Trump that touched upon topics ranging from inflation, economy to employment and jobs.
“Rate cuts have begun in key markets, with US easing now expected to begin in December, and coming elections could weigh on markets, but the global economy remains in relatively good shape,” pointed out a recent Seeking Alpha analysis.
The S&P 500 Index (SP500) rose nearly 1% in the last one week, while Dow Jones Industrial Average Index (DJI) gained marginally. Both NASDAQ Composite Index (COMP:IND) and NASDAQ 100-Index (NDX) advanced nearly 2%.
