Investors’ pessimism lessens as economic data leans in favor of rate cuts

Investors’ pessimism about the short-term outlook for the stock market eased this week, as recent economic data boosted hopes for interest rate cuts.

A total of 26.1% of respondents to the American Association of Individual Investors, or AAII, survey, He said Investors believe the market will head lower in the next six months, compared to 28.3% last week.

Neutral sentiment also rose this week, with 32.2% of investors surveyed by AAII seeing no change in market direction. The figure was 27.2% a week ago.

The May personal consumption expenditures price index, widely seen as the Federal Reserve’s preferred measure of inflation, fell in May, providing some relief to market participants.

Federal Reserve officials said at their June policy meeting that they were looking for more positive inflation data to gain more confidence that things were moving in the right direction, with the committee acknowledging that there had been “modest further progress” toward its 2% inflation target.

Federal Reserve Chairman Jerome Powell’s statement on inflation also helped calm sentiment.

However, weak earnings for some heavyweight stocks have led to fewer investors feeling optimistic about the short-term outlook for the stock market.

A total of 41.7% of respondents expressed optimism about the market’s direction in the next six months, compared to 44.5% last week.

The bullish and neutral figures came in above historical averages of 37.5% and 31.5%, respectively.

Over the week, Wall Street digested Nike’s (NKE) stunning warning that sales would fall 10% in the current quarter, sending the sportswear giant’s stock down more than 10% in after-hours trading.

Micron shares fell 7% in extended trading Wednesday after the memory chip maker issued guidance that matched estimates, overshadowing a stronger-than-expected third quarter.

Similarly, drugstore chain operator Walgreens Boots Alliance (WBA) shares fell more than 5% on Thursday after it cut its full-year outlook due to a generally challenging retail backdrop.

Moreover, investors’ eyes were also on the first US presidential election debate of the week between President Joe Biden and former leader Donald Trump, which touched on topics ranging from inflation and the economy to employment and jobs.

“Interest rate cuts have started in major markets, monetary policy easing is now expected to begin in the US in December, and the upcoming elections may impact markets, but the global economy is still in relatively good shape,” a recent analysis by Seeking Alpha noted.

The Standard & Poor’s 500 (SP500) rose about 1% last week, while the Dow Jones Industrial Average (DJI) made slight gains. The Nasdaq Composite (COMP:IND) and the Nasdaq 100 (NDX) Up about 2%.