Summertime and the living is uneasy -- at least if you're an investor. "There's no fun out there," says John R. Nofsinger, professor of finance at Washington State University and author of Investment Madness: How Psychology Affects Your Investing ... and What to Do about It. "Everything has been down to kind of flat." It's fun and excitement that draws most individual investors into the stock market beyond pumping money into their 401(k)s -- even though the current seesawing period might well be an excellent time to invest, according to financial experts. Nofsinger says this summer ennui reminds him of an old trader's saying, "Never short a dull market." Dull, dull indeed. Returns for the major market indices meander up and then meander down again. The S&P 500, for example, began the year at 1108, jumped higher, slid lower, then higher and lower again and closed last week just 7 points below the year's starting mark. While 2003 was a banner year for stocks, uncertainty is clouding the future for companies and investors alike: the presidential election, terrorism, hostilities in Iraq, rising oil prices and, of course, the possibility of more interest rate hikes. Much of the unease came to a head recently when the UBS/Gallup Index of Investor Optimism conducted its quarterly survey. "All of the attitudes went into the tank the second quarter," says Frank Newport, editor in chief of the Gallup Poll Tuesday Briefing. Investors tend to feel most optimistic about investing in the market when the market is doing well and vice versa. Consider the East Coast (the survey is divided regionally), investor sentiment index and the performance of the S&P 500 in the accompanying charts. The sentiment index hit a peak of 165 the first quarter of 2000, just as the great bull market of the 1990s was imploding, and tumbled until it touched 60 in the third quarter of 2001. Then it climbed back to 110 in the first quarter of 2002, only to collapse to 16 in the first quarter of 2003, the year the markets rallied with a terrific performance.
Investor Optimism Contrarian indicator?
(Are you seeing a contrarian pattern here?) This year, the index hit 77 the first quarter, then fell to 51, though Newport thought he saw signs of an uptick in June. "It's not hugely robust," he quickly added. Apparently not, based on the business of people in the business.