Individual Investors Like Stocks Again — Reallly

Are happy days here again?  That’s the implication of a report from Bespoke Investment Group LLC, which argued that individual investors may be returning to stocks.

Bespoke found that there have been gains at the start of the trading day in the Standard & Poors 500 Index, when individuals tend to try to get in on the action.   The differences can be stark.

“The S&P 500’s average hourly change between the prior close and 10 a.m. is 0.45 percent, higher than the 0.18 percent that occurs in the next 60 minutes until 11 a.m., according to a Sept. 17 report sent to clients by Bespoke,” Bloomberg News says.  “The difference during the remaining one-hour segments of a session is less than 0.1 percent.”

This is a reversal from the last two weeks in August when most of the declines happened in the first half hour of trading, Bespoke said.  So far this month the S&P 500 has gained about 8 percent this year.  Most investors, though, are hardly in a celebratory mood.

Though the recession may be technically “over”, the views of the National Bureau of Economic Research’s Business Cycle Dating Committee mean little to most Americans.  Many can no longer count on their homes to provide them any sense of economic security given the disastrous state of the housing market.   Ditto for their jobs.  The New York Times pointed out recently that nonfarm payrolls fell 329,000 from their level at the recession’s official end 15 months ago.  For job seekers, that means finding work will continue to be a challenge.

Other surveys contradict Bespoke’s findings.  A recent Gallup Poll found that the economy and unemployment continue to top the list of American’s concerns, in the least surprising results in the history of polling.  Deloitte estimates that holiday sales this year will rise 2 percent to $852 billion. People are increasingly mad at the Obama administration for spending trillions on bailouts (which many economists say were necessary) and not doing enough to improve their lives  (a fair point).  Odds are outstanding that voters will channel their anger into a Republican takeover of one or both houses of Congress.

It seems unlikely that people who were scared out of the market by its volatility suddenly think stocks are cheap and are adding to their portfolios.  More sophisticated investors, though, may be following the advice of sages such as Warren Buffett who don’t believe there will be a double-dip recession and are snapping up shares.   Mom and Pop investors may follow later after all of the smart money is made.

Bespoke’s data is interesting but it doesn’t prove or disprove anything.

–Jonathan Berr