Submitted by Callum Thomas via AMP Capital [4],
The US bull market is the most ‘neutral’ bull market on record. Past examples say this could be bullish, but the absence of bearishness is a complicating factor.
One trend I previously highlighted is the increasing neutrality of investors in the investor sentiment surveys (with a focus on the Investors Intelligence [II] and the American Association of Individual Investors [AAII] in this analysis). As the market moves higher, investors have become more and more neutral.
[5]
My suspicion is that there is an element of psychological scarring from the GFC as investors suspect the next GFC could come at any moment – a heightened sensitivity or aversion to bubbles. So investors resist being bullish, and in the context of a rising market where things are gradually improving they don’t want to be bearish either - so neutral is the place to be.
[6]
So what? What happened in the past when investors were this neutral? Well, the problem is they have never been this neutral, so it’s hard to answer that question. We saw a rise in neutrality after the initial recovery from the GFC which was followed by a big bull market. We also saw a rise in neutrality in the middle stages of the dot-com bull market. And again in early 1990s before the late 90s bull market took-off. So you could make a case that it is a good thing. The complicating factor is the bears are also around the lowest point ever.
