Uh Oh. The Big Money Guys are Optimistic.

Posted on April 27, 2012
Filed Under Fidelity Funds, Investment Strategy, Mutual Funds, The Economic Scene

According to the April 25, 2012 issue of Barron’s magazine, a majority of investment professionals now expect the coming year (through June 2013) to be good for American stocks. Specifically, 55% are bullish, 31% are neutral, and 14% see declines ahead.

As I’ve said in the past, I tend to get a little queasy when too many of the “big money” pros are happy about the future. In the past, too much agreement has led to stock market trouble, in part because more of the money that had been safely on the sidelines – the “fuel” for future rallies – goes into the market. As that gets used up, there is less and less to propel stocks higher. Remember, stocks rise only when more people want to buy than sell.

However, we will not invest our clients’ funds based on what the pros do. All these so-called indicators are highly unreliable. Stocks and bonds, and the mutual funds that buy stocks and bonds, will primarily react to the day’s headlines, and news headlines, by definition, will always be unpredictable.