Stocks were up an astounding 16% in 2013 on a total return basis as of early September. And, despite the recent slowdown in stocks’ momentum, a recent Fidelity poll1 of active investors suggests a majority believe the market could go even higher.
Bullish outlook for stocks
Thirty-six percent of the 1,200 respondents, on average, who replied to each question in Fidelity’s Traders’ Summit poll conducted on August 27, 2013 think the S&P 500® Index will rise more than 100 points to at least 1,758 by year-end (the S&P 500 was at 1,658 when the poll was conducted). Another 41% expect the market to end within 100 points, while just 23% think stocks will decline by more than 100 points. The S&P has already risen roughly 200 points in 2013.
Stocks are overwhelmingly the asset class of choice among traders who responded to our survey. Seventy-one percent favored stocks when asked where they would put their next dollar. Cash (12%) and real estate (7%) came in a distant second and third. To get an idea where they plan to obtain stock exposure, we asked what sector they thought had the most upside within the next six months. They chose health care (34%), information technology (21%), and energy (20%).
It’s not particularly surprising to see the health care sector viewed in such a favorable light right now; it has been one of the top-performing segments of the market this year. However, along with utilities and materials, technology has vastly underperformed the broad market, although the NASDAQ did weaken less than the S&P 500 during August. The energy sector has had a lot of buzz around it all year due to the massive, ongoing growth in U.S. oil and gas production.
Cautious about rates
For all the positive feelings surrounding stocks, bonds were a relatively different story—given the recent volatility in yields. After an extended period of low rates, the yield on the 10-year Treasury has jumped from 1.66% on May 1 to 2.84% as of September 3, 2013.
Forty-one percent of survey respondents think the rise in rates is a negative turn of events for bonds, 39% were neutral, and just 20% saw the increase in rates as an opportunity.
Interestingly, 35% of respondents who hedge stock positions in their portfolio employ bonds to do so. Options (31%) and conditional orders (20%)—such as stops and limit orders—were the other top choices. Forty-three percent of those surveyed said they do not employ a hedging strategy.
Confidence remains high despite the recent rise in rates. Forty-eight percent of active investors said they have matched or exceeded the market’s 20% gain in 2013, and 83% believe they will match or beat the S&P 500 in the next 12 months. While that percentage is at a historic low over four years and 11 polls, it still represents an overwhelming majority.
Also, active investors think they will earn a higher rate of return than a similar study found one year ago. Seventy-three percent expect at least a 6% return on their investments, compared with 63% having the same expectation in September 2012.
Stocks fell 3% in August on Fed taper talk and geopolitical concerns, among other factors. While a number of risks remain, the U.S. economy appears steady. There are a number of potential opportunities in stocks, where traders appeared especially bullish. As the weather starts to cool down, many traders are expecting the market to heat back up.