We are seeing a significant amount of volatility in the markets this past six weeks and even for the whole year. Today saw the S&P 500 drop 2% and the Dow drop 600 points or 2.32%. The rising dollar was the reason given most for today's drop.
Last week as votes were being counted, investors appeared to be happy with the outcome of mid-term elections. Major U.S. stock indices in the United States moved higher last week, and the American Association of Individual Investors (AAII) Sentiment Survey reported:
"Optimism among individual investors about the short-term direction of stock prices is above average for just the second time in nine weeks...Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.4 percentage points to 41.3 percent. This is a five-week high. The historical average is 38.5 percent."
Before you get too excited about the rise in optimism, you should know pessimism also remains at historically high levels. According to AAII:
"Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 percentage points to 31.2 percent. The drop was not steep enough to prevent pessimism from remaining above its historical average of 30.5 percent for the eighth time in nine weeks."
So, from a historic perspective, investors are both more bullish and more bearish than average. If Sir John Templeton was correct, the mixed emotions of investors could be good news for stock markets. Templeton reportedly said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."
While changes in sentiment are interesting market measurements, they shouldn't be the only factor that influences investment decision-making. The most important gauge of an individual's financial success is his or her progress toward achieving personal life goals - and goals change over time.
