Optimism about the short-term outlook for the stock market fell after four consecutive weeks, as sticky inflation is tempering with investors’ hope for an interest rate cut from the Federal Reserve.
A total of 39% of respondents of the American Association of Individual Investors, or AAII, Sentiment survey showed optimism about where the market is headed in the next six months, compared to 47% and 40.9%, respectively in the last two weeks.
The figure is above the historical average, which stands at 37.5%.
The percentage of those surveyed who felt bearish about the market also increased slightly and came in at 26.7%, compared to last week’s figure of 26.3%.
Neutral sentiments also rose this week, with 34.2% of the respondents polled by AAII seeing no change in the market direction. The number was 26.6%, a week ago.
Investors, who came off a three-day-long weekend on the account of Memorial Day holiday on Monday, are gripped by a growing sense of uncertainty over expected interest rate cuts by the Federal Reserve.
Fed Chair Jerome Powell, after a policy meeting on Wednesday, said the policymakers were looking for more evidence that the economy was making progress in reaching the central bank’s inflation goal and that they didn’t get that confidence at their most recent meeting.
The Federal Reserve kept its policy rate unchanged at 5.25%-5.50% at its last meeting, citing a lack of further progress toward its 2% inflation goal in recent months.
Earlier on Thursday, another S&P Global report pointed to sticky inflation and strong U.S. business activity growth despite high interest rates – indicators that the Fed doesn’t want to see.
Comments from Minneapolis Federal Reserve President Neel Kashkari, who is known as one of the more hawkish policymakers, also hit sentiment.
This overshadowed the strong showing from Wall Street darling Nvidia (NVDA), a member of Magnificent 7 club, which jumped 9% after the Jensen Huang-led firm posted better-than-expected quarterly results and guidance that topped analysts’ expectations.
On the earnings front, Workday (WDAY) shares tumbled over 7% in extended-hours trading on Thursday after the back office software provider lowered its full-year revenue guidance. Losses in airline stocks and managed care players also weighed on markets.
“Stocks struggle as bond yields rise and Fed officials express cautious rhetoric about monetary policy,” pointed out Seeking Alpha analyst Lawrence Fuller.
Looking forward, market watchers will access the U.S. gross domestic product that was revised down to a cooler-than-expected 1.3% annualized growth rate in Q1. The revision primarily reflects a downward revision to consumer spending.
The S&P 500 Index (SP500) fell marginally in the last one week, while Dow Jones Industrial Average Index (DJI) went down over 1%. NASDAQ Composite Index (COMP:IND) and NASDAQ 100-Index (NDX) gained over 1% and 0.6%, respectively.
