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Summer is in full swing, and investors appear to have a sunny outlook for the stock market.
Retail investor optimism just hit its highest level since April 2021, when stocks were soaring to new highs in the aftermath of the pandemic. That’s according to the most recent data from the American Association of Individual Investors’ weekly survey.
During the week ending on July 19, 51.4% of investors reported feeling bullish about the market, meaning that they expect stocks will keep rising over the next six months. That reading is the highest in 27 months and also the first time that a majority of investors have reported feelings of optimism in more than a year.
The share of investors who reported feeling bearish — meaning they believe stocks will fall over the next six months — was 21.5%, the lowest level since June 2021.
Why are investors so optimistic?
Stocks have soared this year, led by high-flying tech giants like Apple and Nvidia. The S&P 500 index is up 19% in 2023, while the Dow Jones Industrial Average, which just notched its longest winning streak since 2017 on Thursday by rising for nine straight trading sessions, is up 6.4% for the year.
Many of the gains in the tech sector are thanks to an explosion of enthusiasm around artificial intelligence, and that growth has only broadened now that a long-expected recession has so far failed to materialize. Stronger-than-expected corporate earnings have also boosted stocks this year, as has cooling inflation and the prospect of the end of the Federal Reserve's rate-hiking cycle.
Retail investors aren't the only ones who expect the gains to keep coming, either. Earlier this week, analysts at Credit Suisse raised their year-end target for the S&P 500 from 4,050 points to 4,700 — 3.4% higher than Friday's levels.
Of course, no one has a crystal ball when it comes to the stock market. Some experts have warned the challenges facing the market could come to a head sometime soon: Expectations for earnings this quarter may be higher than companies can deliver, for instance, and valuations may be too high to be sustainable over the long term.
Michael Rosen, managing partner and chief investment officer at Angeles Investments, recently told Money that earnings disappointments in the coming weeks could lead to a "disproportionate drop" in share prices.
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