Elevated Investor Pessimism
Our Sentiment Survey caught the attention of many market participants in early July. Bearish sentiment, expectations that stock prices will fall over the next six months, reached 57.1%. This was the 15th highest level of pessimism registered by the survey since it began in 1987.
The State Street Investor Confidence Index also displayed historically high levels of pessimism. The June 2010 reading for the index was 89.7, the fifth-lowest reading since the survey started in 2003.
RBC Capital Markets surveyed 440 capital markets participants in May about their outlook. A majority of respondents thought risk has become higher for every asset class, with stocks and currencies perceived as more risky than sovereign debt. Many also do not expect to issue new debt or equity over the next two years, instead preferring to rely on cash flow and retained earnings to finance projects.
Yields on the 10-year Treasury note fell below 3% last month. Since bond yields and bond prices are inversely related, this also means that 10-year Treasuries are priced at historically high levels. The low yields are perceived as a sign that some investors are preferring return of capital over return on capital.
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