New York – Mimi Rauschelbach, a retired businesswoman from Phoenix, says she is confident about the strength of the American economy. But that is not translating, as it often does, into confidence in the stock market.
Like thousands of individual investors across the country, she has become more cautious than she had been in years past about investing in stocks. And it may not make much difference that the stock market’s main measures had their best day of the year Thursday.
Bolstered by signs of corporate profit growth, investors made up for a sharp downturn Wednesday, when stocks fell to their lows for the year. The Dow Jones industrial average rose 206.24 points Thursday, or 2.1 percent, to close at 10,218.60. The Standard & Poor’s 500-stock index gained 22.45 points, or 2 percent, to 1,159.95. For the two benchmarks, it was the biggest daily gain since October 2003.
The Nasdaq composite index surged 48.65 points, or 2.5 percent, to 1,962.41, its best one-day gain since March. Google said after the market closed that its earnings beat forecasts by 40 percent, a report that could help propel stocks today.
Still, all three market measures are down 4.3 percent or more for the year. Individual investors are weathering one of the more trying times in the market since the early months of 2003, just before stocks rallied to end the three-year market plunge after the equity bubble burst in 2000.
One consequence is a sudden jump in market volatility, something that can frighten investors. In just the past seven trading days, the S&P 500 has had daily moves of 1 percent or more in either direction five times. In the 69 other trading days this year, there were only six days when the index moved 1 percent or more.
It appears, based on data on the flow of money in and out of mutual funds, that many investors have decided they have had enough of stocks. In the first three weeks of April there was a net outflow of $147 million from domestic stock mutual funds, according to AMG Data Services. That comes after inflows of $3.5 billion in January, $9.3 billion in February, and $5.9 billion in March.
For investors such as Rauschelbach, there is not the blind faith in, nor the blind betting on, certain sectors that was rampant at the end of the 1990s.
“I try to buy more carefully,’ said Rauschelbach, who is in her early 60s and lives with her husband off the income from their retirement nest egg. “They talk about a stock pickers’ market; I think that is absolutely the case.’
Several recent surveys suggest investors are less positive about the economic growth and the stock market than they were at the start of the year. According to the UBS Index of Investor Optimism, which was released in March, sentiment about the economy dipped to the same level it was at in October, the lowest it had been since June 2003, on worries of permanently higher gas prices.
About 77 percent of investors said gas prices would rise permanently last month, compared with 54 percent in May.
Investors still have “concern when you talk about the stock market,’ said Ken S. Janke, chairman of the National Association of Investors Corp., an umbrella organization for investors and investment clubs. “If they see any kind of bad news, whether it’s predictable or not, they take that as a sign to sell.’
Tobias Levkovich, chief U.S. equity strategist at Citigroup, said investors “are afraid to buy into this market. They don’t know where the bottom is.’
Even with Thursday’s rally, the market has yet to recover from last week, the worst for the market since August.
Federal Reserve policymakers, who next meet May 3, are expected to keep raising their short-term interest rate benchmark, especially if inflation pressures persist.
But if those rate increases come while the economy is slowing, the impact on economic growth and corporate earnings could be more than the stock market could take.