A Wealth of Common Sense: Animal Spirits: Peak Pessimism
Markets are facing a tough year. Inflation and mortgage rates are spiking. And the economic data out there has yet to turn positive. It’s no surprise that investors are pessimistic. But have they reached peak pessimism?
They may not yet. That’s based on a number of factors, such as the length and depth of the average bear market. And based on how investors are handling current market conditions.
So far, only 7 other years since the end of World War II have had a lower percentage of positive days in the first half of the year.
It’s clear that Investors are swearing off investing after making massive returns in 2020 and 2021. And that’s before the US economy has officially slipped into a recession.
And with 40 percent of stocks in the S&P 500 index still at a 52-week low, it’s clear that selling in all assets has been relentless. However, that’s not usually a sign of a bottom. Investors may expect more selling in the weeks ahead.
Those who ignored risk are starting to reconsider a portfolio more balanced with fixed income or other, less risky assets. Yet the traditional 60-40 portfolio, a mix of stocks and bonds, still hasn’t come back into favor yet.