Uh Oh: Investors Are Becoming More Optimistic

It’s often said that the market will only truly bottom out when investor confidence hits rock bottom. If that’s true we may have a long way to go. Merrill Lynch’s monthly survey of fund managers shows that investors have actually gained confidence this month. The number of those who expect substantial economic growth this year rose to 30 from 25, Reuters reports.

Investors, who have been holding an extremely high level of cash in recent months, are slowly moving back into the markets. The survey showed a 5.3 per cent average holding of cash, down slightly from 5.5 per cent in December.

OK, the results aren’t exactly a terrifying demonstration of delusional optimism. 5.3 per cent cash is still quite high, and 30 out of 205 expecting a recovery is not really that high. Equities are still not back in favour over all. But the trend is in an ominous direction, at least from a contrarian point of view.

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