ETFs May Be Better Than Mutual Funds, But …

• An Inside Look at Exchange-Traded Funds – This article explains the fundamental differences between ETFs and mutual funds.
  
• Tracking the S&P 500 With Mutual Funds and ETFs – In this 2017 AAII Journal article, I compared the various S&P 500 mutual funds and ETFs. As I explained, just because two funds have “S&P 500” in their name doesn’t mean they are the same.
  

Optimism among individual investors about the short-term direction of the stock market reversed some of its recent gains, falling for the first time in four weeks. The latest AAII Sentiment Survey also shows a rebound in pessimism and modestly higher neutral sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.0 percentage points to 29.4%. The drop keeps optimism below its historical average of 38.0% for the 31st time this year and the 19th time in 20 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased by a slight 0.5 percentage points to 37.4%. Neutral sentiment is above its historical average of 31.5% for the 18th time in 19 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 5.4 percentage points to 33.3%. Pessimism is above its historical average of 30.5% for the eighth time in 10 weeks.

All three indicators are currently within their typical ranges.

Many individual investors have been monitoring trade negotiations, particularly between the U.S. and China. Additionally, many AAII members expect a recession to start within the next 12 to 24 months. Also having an influence on sentiment are Washington politics, geopolitics, valuations, corporate earnings, monetary policy and interest rates.

This week’s special question asked AAII members what they thought about the Federal Reserve’s decision to lower rates for a second time this year. Nearly 59% of respondents say that they disagree with the decision to lower rates again. The reasons for their disagreement varied, with some saying that the Fed gave into political pressure and others saying that the decision to lower rates again was premature. On the other hand, 29% of respondents say that they agree with the Fed’s decision because it will help keep the economy moving. Additionally, 12% say that the Fed should have lowered rates more than they did.

Here is a sampling of the responses:

•  “I think it is a mistake. The Fed is misinterpreting the market signs and is being influenced by political considerations. The Fed should simply maintain the rates.”
•  “Premature in my view, if U.S./China trade disputes get reasonably resolved, world economies should strengthen.”
•  “The Fed should have kept the rates the same. Why lower them when the economy is doing well? The lowered income tax rates were supposed to have been enough to stimulate the economy.”
•  “Our family intends to take advantage of the low interest rates to purchase a new home. Otherwise, I have reservations about the impact to our national economy.”
•  “It is necessary based on all economic indicators, trade uncertainty, U.K./EU exit uncertainty, etc. And, of course, pressure from the president.”