The Standard & Poor’s 500 Index’s best start in 25 years is doing little to restore Americans’ confidence in the stock market.
The benchmark gauge for U.S. shares has climbed 6.9 percent in 2012, the most since it rose 14 percent to begin 1987, data compiled by Bloomberg show. It traded at an average of 14.1 times earnings since the start of 2011, the lowest annual valuation since 1989. More than $469 billion has been pulled from U.S. equity mutual funds over five years and New York Stock Exchange volume slipped to the lowest since 1999.
Pessimism is taking a toll on the securities industry, where more than 200,000 jobs were lost last year, even as U.S. unemployment declines as the economy accelerates. Sentiment is the worst since the early 1980s, when 17 years of equity market stagnation gave way to the biggest rally in history.
“Investors are scared to death,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a telephone interview . . . . [Emph. added]
So stocks are cheap on an historical basis, at the same time that individual investors hate them-an encouraging combination of circumstances. And don’t forget that both banks and non-financial companies have more cash on their balance sheets, as a percentage of assets, than at any time since 1957, when record-keeping began. That cash won’t be hoarded forever. That’s bullish, too. . .