up 24% on the year and the
Dow Jones Industrial Average
down 13.6%, it probably shouldn't come as a surprise that tech investors are a happy lot and industrial types are not.
This difference in feeling is reflected in some popular sentiment polls. The
American Association of Individual Investors'
poll has shown a pretty high level of optimism for the last few months. Its latest reading showed 58% of respondents were bullish on stocks for the next six months vs. 16% bearish (the remaining 26% were neutral).
poll of stock-futures advisers shows a different story. Only about 33% of them are bullish. Going into the July peak last year, over 50% were bullish.
"The sentiment indicator reflects what group of people you're looking at," says Tim Hayes, senior equity strategist at
Ned Davis Research
. And so the divergence in the polls makes sense. A lot of individual investors have been watching their portfolios surge along with the Nasdaq. Meanwhile, futures traders mostly deal in the
-- which, like the Dow, is down on the year.
Sentiment is considered a contrary indicator. The idea is that when everybody is negative on stocks, then the bad news is out there, and it's time to go long. Conversely, when everybody is bullish, all of the good news is priced into the market. Time to get out.
It doesn't always work out, though. Depressed investors can get even more depressed; euphoric investors, even more euphoric. But there are other reasons for thinking the Nasdaq's surge will at least taper off a bit, while other areas of the market play catch-up.
Morgan Stanley Dean Witter's
bullish equity strategist (the other two are not), points out that lately there has been a bit of a rotation in technology. Some dot-com issues have stopped running higher. At the same time, some old tech names are catching bids:
, for example, is up near its old highs, and
has, after a month below 100, finally risen back above parity with the
"My guess is that once all the rotation is through, we'll be in for a pause," Canelo says.
What happened in the Nasdaq, Canelo reckons, is that "the analysts were way too cautious going into Y2K and they totally missed the post-Y2K boom." The surge in tech-stock prices is a "coming to terms" with how much better than expected tech has done. The rotation is a sign that tech stocks' good fourth and first quarters are getting integrated into the market and that the sprint's about to end.
"That," says Canelo, "could provide an opportunity for the rest of the market."
There are a few big economic reports due out in the coming week, and they may pose a bit of a problem for the market -- all of them look like they'll come in strong. First is
on Tuesday, then the
Producer Price Index
on Thursday and the
Consumer Price Index
"There's a lot of things that could have a real negative tone," says Mike Cloherty, senior market economist at
Credit Suisse First Boston
. "The retail sales are going to be extraordinarily strong -- the consensus is looking for a gain of more than 1%. And there's a pattern where you tend to see January retail sales get revised up significantly. That puts the first quarter off to a strong start."
The recent surge in energy prices will play a hand in both the PPI and CPI. "The CPI is going to go up over 3% for the first time since Feb. 1997," says Cloherty -- a whiff of inflation.