From Bloomberg: {Excerpt with my highlights}
Stocks Least Loved Since ’80s on U.S. all of Worry
By Nikolaj Gammeltoft, Inyoung Hwang and Whitney Kisling - Feb 6, 2012
The Standard & Poor’s 500 Index’s best start in 25 years is doing little to restore Americans’ confidence in the stock market. The benchmark gauge for U.S. shares has climbed 6.9 percent in 2012, the most since it rose 14 percent to begin 1987, data compiled by Bloomberg show. It traded at an average of 14.1 times earnings since the start of 2011, the lowest annual valuation since 1989. More than $469 billion has been pulled from U.S. equity mutual funds over five years and New York Stock Exchange volume slipped to the lowest since 1999. Pessimism is taking a toll on the securities industry, where more than 200,000 jobs were lost last year, even as U.S. unemployment declines as the economy accelerates. Sentiment is the worst since the early 1980s, when 17 years of equity market stagnation gave way to the biggest rally in history.....
....Sentiment has deteriorated even as the S&P 500 rose 99 percent since March 9, 2009. The 106 percent expansion in U.S. earnings during the last nine quarters, the most since 1987, helped fuel the rally. For the period ended Dec. 31, 67 percent of companies in the S&P 500 beat analyst profit estimates as earnings advanced 3.3 percent. Investors pulled money from mutual funds that buy U.S. stocks for a fifth year in 2011, the longest streak in data going back to 1984, according to the Investment Company Institute in Washington. Withdrawals were $135 billion last year, the second-highest total after 2008, the ICI said.
Concern European leaders will fail to keep Greece from defaulting, the May 2010 flash crash in which $862 billion was erased from equities in less than 20 minutes and some of the most volatile markets on record last year helped spur the withdrawals. Of the more than $11.1 trillion that was wiped off U.S. shares between 2007 and 2009, $8.1 trillion has been restored.
“The stock market has effectively doubled since the March ’09 low, and we’re still in redemption territory for equity funds,” Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., said in a Feb. 2 phone interview. Her firm has $1.7 trillion in client assets. “That’s never happened.”
Money managers haven’t kept up with the S&P 500’s advance. Hedge funds declined 5 percent in 2011, the third year of losses since 1990, according to Chicago-based Hedge Fund Research Inc. A total of 21 percent of 525 global fund categories tracked by Morningstar Inc. topped their benchmark indexes last year, the fewest since at least 1999.
Valuations have fallen even as the S&P 500 rallied 21 percent since the end of 2009 because profits increased five times as fast. The price-earnings ratio for the benchmark gauge of American equities has fallen to 14 times reported income, down from 24 at the end of 2009. The ratio slipped as low as 10.2 at the end of the 17-month bear market in 2009, when the S&P 500 declined 57 percent.....
....Rallies have faded since 2000, when the dot-com bubble drove the Dow Jones Industrial Average to a record high. The gauge peaked at 11,722.98 that year, and has risen above and then fallen below that level seven times since. It ended at 12,862.23 on Feb. 3, up 5.3 percent so far this year. The past decade parallels the span between Dec. 31, 1964, and the end of 1981, when the Dow added less than 1 point after surging interest rates diminished the appeal of equities. While the 115-year-old stock gauge ended the period at 875, it ranged between 577.60 and 1,051.70. After stalling for 17 years, the U.S. stock market staged the biggest bull market in history through early 2000, driving the Dow up 15-fold from its low point in 1982. The surge coincided with a decrease in the yield on 10-year Treasuries to 6.68 percent from 13.55 percent. The rate was 4.21 percent at the end of 1964, and it peaked at 15.84 percent in 1981. On Feb. 3, the figure was 1.92 percent.
Falling interest rates failed to lift stocks in the last decade as the S&P 500 slumped 12 percent from its high in March 2000. Equities slipped as the global economy experienced two financial crises, including the worst recession since the 1930s. Growth in U.S. gross domestic product averaged 2 percent a year between 1999 and 2011, compared with 3.6 percent between 1964 and 1981, and 3.3 percent from 1981 and 1999, according to data compiled by Bloomberg.
The retreat leaves stocks in position to rally because so many bearish investors can be lured back to equities and the market is cheap, according to Scott Minerd, the chief investment officer of Santa Monica, California-based Guggenheim Partners LLC, which oversees more than $125 billion. “Stocks are poised for a generational bull market, whether it starts this year, or next year, or in five years, is anybody’s call,” he said. “Even if we had a 50 percent increase in multiples, stocks would still be cheap.”
My Comment: Investors are as wrong footed now as they were in 2000 when everybody loved stocks, in 2003 when everybody hated them and in March 2009 when many were saying that the S&P 500 could go to 300. In the meantime so much money {trillions of dollars} is either sitting in cash or in low yielding fixed income that the ability to ever make any money from those investments is problematic. At some point a good portion of that money is likely to be engaged again in the equity markets. For many of course it will probably be after stocks have had a much higher run up than we've seen now. Still that money is the fuel that could keep a sustained bull market in place for at least a few years!
*Long ETFs related to the S&P 500 in client accounts. Long ETFs related to the Dow Jones Industrial Average in certain client accounts.
