Pessimism Is Rising on Wall Street--and That Might Be Good News for Markets
Bears are starting to get the upper paw on Wall Street--and that may be good news for beleaguered investors.
Pessimism about the outlook for the U.S. stock market surged to its highest level in more than 16 months last week, according to a poll of more than 100 investment newsletter editors by Investors Intelligence newsletter.
The percentage of newsletter advisors who considered themselves bearish--or pessimistic--rose to 38% from 30.9% the week before. The last time bearishness was that high was Nov. 5, 1999.
Meanwhile, the percentage of advisors who considered themselves bullish--or optimistic--fell for the fourth time in five weeks, slipping to 48.9% from 51.6%.
With Nasdaq and the Standard & Poor’s 500 both wallowing in bear market territory--defined as a drop of 20% or more from peak levels--worsening investor sentiment is seen as a positive sign by some technical analysts.
These analysts, who try to predict market moves based on price patterns and other statistical measures, track investor sentiment as a “contrary” indicator. When bearishness surges it’s considered a sign the market may be nearing a bottom because investors who view stocks unfavorably have probably already sold their shares.
In contrast, many analysts see extreme optimism as a sign stocks may be poised to fall. The optimists’ camp reached a 14-year high of 61.8% the week ending Feb. 2.
Combined, the percentage of newsletter advisors who are either bearish or who expect just a modest drop in the U.S. stock market in the next 12 months was 51.1% last week, up from 48.4% the week before. Those in the modest-drop camp totaled 13.1%.
Last week, when the survey was conducted, Nasdaq advanced 2%, its first weekly gain since Jan. 26. The S&P; 500 lost 0.9% and the Dow Jones industrial average fell 3.2%.
Nasdaq Sells 10% Stake: The Nasdaq Stock Market, which is becoming a private, for-profit company, said Wednesday it sold a 10% stake for $240 million to San Francisco-based Hellman & Friedman, a private stock-investment firm.
The investment in Nasdaq is the first since the second-largest U.S. stock market completed its second private stock sale to companies, brokerages and institutional investors in January.
Nasdaq, to fully function as a for-profit company, still needs Securities and Exchange Commission approval of its application to formally register as a stock exchange.
Hellman & Friedman, which has invested in Powerbar nutrition bars, the Young & Rubicam advertising agency, and VoiceStream Wireless Corp. (ticker symbol: VSTR), will buy $240 million of Nasdaq bonds, the market said.
These bonds, which are being sold at a negotiated 4% coupon rate, are convertible to Nasdaq stock at any time during the next five years, Nasdaq said. After the transaction, Hellman & Friedman will own 9.8% of the stock market.
As part of the agreement, Hellman & Friedman Chairman Warren Hellman will join the Nasdaq board.
Nasdaq has said it will consider an initial public offering of its stock later this year.
Nasdaq had $150 million in net earnings last year on $800 million in revenue, Nasdaq Chief Financial Officer Gordon Martin said.
Unregistered Firms Face Penalties: Securities and Exchange Commission staff turned over names of 921 U.S. investment advisor firms that might face penalties for failing to meet deadlines as the agency began electronic registration of the firms, an agency lawyer said.
About 7,750 advisory firms were required by mid-January to get passwords from the SEC--the first step toward registering.
The 921 firms haven’t obtained the passwords, and Jennifer McHugh, special counsel in the SEC’s Division of Investment Management, said she has sent their names to the SEC’s Office of Compliance Inspections and Examinations.
“Those advisors are receiving letters mailed today by certified mail,” McHugh said. The new system eventually will give investors free access via the Internet to information about advisors’ disciplinary histories, potential conflicts of interest, fees and services.
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Bear Tracks
The percentage of investment advisors who are bearish on stocks has climbed to the highest level since late 1999, according to Investors Intelligence’s weekly poll. (Other advisors remain bullish or expect only a short-term market decline.)
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Percentage of advisors expressing bearish sentiment, month-end data and latest
Wednesday: 38%
Sources: Investors Intelligence, Bloomberg News
