Bloomberg News

Crash Concern Seen Signaling U.S. Stock Gains: Chart of the Day

January 12, 2012

(GRAPHIC: COD_STOCKS_SIGNAL_011212. CHART OF THE DAY. Size: 3C X 4in. (146.0 mm X 101.6 mm) Expected by 15:00.)

Jan. 12 (Bloomberg) -- Individual investors are so concerned about the risk of a U.S. stock-market crash that the pessimism signals share prices are poised to rise, according to Bespoke Investment Group LLC.

The CHART OF THE DAY compares the performance of a crash- confidence index, compiled by the Yale School of Management, with the Standard & Poor’s 500 Index in the past decade. Yale’s gauge shows the percentage of individuals that expect the market to avoid a 1929- or 1987-style plunge in the next six months.

Confidence dropped to lows in November 2002 and April 2009, a month after the two most recent bull markets in stocks began. Last November’s reading, the latest available, was the lowest since the latter month. The figures are based on six-month averages of monthly survey results.

Small investors are “truly spooked,” Bespoke wrote in a posting on its website Tuesday. “Fortunately, this is a contrarian indicator, which provides a reason to be bullish.”

Bespoke, based in Harrison, New York, highlighted the Yale index along with the university’s indicator of confidence among institutions. November’s figure for larger investors was 24.29, above the 17.07 for individuals. Institutional readings have been higher each month since November 2009.

Concern among smaller investors may help explain why money flowed out of mutual funds focusing on U.S. stocks in 2011, the fifth straight year of withdrawals. Last year’s total was $132 billion, based on preliminary data from the Investment Company Institute, a Washington-based trade group.

--Editors: Joanna Ossinger, Nick Baker

-0- Jan/12/2012 19:00 GMT

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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