Investors Are Optimistic, Corporate Leaders Are Cautious

Tuesday, 12 Feb 2013 08:12 AM

By Michelle Smith

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While business leaders are signaling caution ahead, investors are growing more optimistic, according to The Wall Street Journal.

There are few discussions these days about a hard landing in China, and mania surrounding the eurozone crisis has died down. In addition, the United States did not go over the fiscal cliff, and company earnings in the final quarter of 2012 largely beat expectations.

There is a sense that things have gotten better. With these seemingly improved conditions, investors have a new found sense of optimism and they are showing it.

Editor's Note:
Billionaires Dump Stocks. Prepare for the Unthinkable.

Over $4 billion has flowed into stock mutual funds this year, according to Lipper data cited by The Associated Press.

With six weeks of gains and a rise of 6.4 percent in 2013, the Standard & Poor’s 500 reached its highest level since 2007.

With the Dow Jones Industrial Average, it is a similar story. January was the best opening month for the Dow in almost 20 years. Topping that, the index went on to kick off February with a close above 14,000, a feat that was last accomplished in 2007.

"I'm very encouraged by the fact, that finally, for the first time in many years, individual investors seem to be participating in this," David Kelly, chief global strategist at JPMorgan Funds, tells the AP.

But some are wondering if investors may be overzealous.

According to The Journal, the level of investor optimism differs from the mood among corporate leaders. As investors pour money into equities, many executives believe the outlook for the global economy and business prospects for this year warrant caution.

Although 17 S&P 500 companies have raised their first-quarter earnings forecasts, 63 have lowered their forecasts, according to data from FactSet Research. That is the largest disparity seen in the seven years that the data has been tracked, The Journal reports.

"Investors are ignoring [companies'] guidance and responding to economic indicators that revenue and earnings will go higher this year," Edward Yardeni, president of research and consulting firm Yardeni Research, tells The Journal.

It appears investors are also ignoring that fact that analysts have lowered their expectations too. S&P companies' earnings are now expected to rise about 1.7 percent this quarter, according to Thompson Reuters. That is not even half of the earnings projections issued at the top of the year.

Capital spending reflects the investments that businesses are making in their growth. Yet investors seem to be dismissing the fact that many major corporations have announced plans to slash spending this year, despite having record amounts of cash on hand.

There are concerns that investors who have been licking their wounds, are now jumping back into a market where they may be setting themselves up to get burned again.

"Everybody seems to be saying this market needs to correct," Robert Pavlik, chief market strategist at Banyan Partners, tells the AP. "Nobody wants to be in it, but nobody wants to be out of it."

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.


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