TD Ameritrade: Investors Ready for Some Risk

July 16, 2018 — 10:15 AM EDT

Investor sentiment is ticking up as investors get back into the market after months of cautiousness. That increased bullishness is expected to continue to improve, but not without volatility, particularly with trade tensions and geopolitical unrest rising. This means that stock market returns may be tempered throughout the remainder of the year.

"What you will start to see is small increases in sentiment but with the sort of volatility we've seen over the last couple weeks where it's up one day big" and then down the next day, said J.J. Kinahan, chief market strategist at TD Ameritrade, the Omaha, Nebraska-based brokerage. "Anybody who expects 2017 again is being a little delusional."

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Investors Getting Back Into The Markets

Each month, TD Ameritrade Holding Corporation (AMTD) polls its online brokerage customers to get a sense of how they feel about the markets. In June, the brokerage found that investors were more active, sending its Investor Movement Index up for the second month in a row, lodging growth of 7.16%. TD Ameritrade said that investors appeared to take advantage of whatever volatility was in the market, even if was less than a few months earlier. The CBOE Volatility Index, known as the VIX, which measures the volatility of the S&P 500, was below 15 for most of June.

"I think we got to the level in the market where people can take a little more risk," said Kinahan. "One of the reasons is we haven't seen growth in the rate of the yield. That's the biggest surprise this year. People have started to make adjustments." That's a far cry from earlier this year, when investors were selling off stocks in droves as worries about rising inflation and the Federal Reserve's reaction seeped into the stock market. After weeks of sitting on the sidelines, investors appear to be more willing to buy again.

That gradual uptick in sentiment also showed up in Ally Invest's latest quarterly survey. In the study form the brokerage arm of Ally Financial Inc. (ALLY), bullish/very bullish sentiment increased to 39% from 30% in the prior quarter. At the same time, bearish sentiment declined to 16% of investors from 24%. Those levels are still far below the sentiment at the start of the year, when 76% of investors were bullish and just 3% were bearish. Investors in Ally's survey are ignoring the trade tensions and focusing on the strong economy and corporate earnings season that just kicked off. "The economic and political landscape is somewhat turbulent, but the companies still continue to outperform," said David Dusseault, executive director for Ally Invest. "That's what's driving the investments and the money flow into these companies."

Investors Buy on the Dips

The stocks that TD Ameritrade investors bought on a dip during June included AT&T Inc. (T), which got the nod to acquire Time Warner, along with Chinese tech company iQIYI, Inc. (IQ) and Micron Technology, Inc. (MU), both of which traded lower on concerns that Chinese investments in U.S. tech firms will be curbed by the Trump Administration. Netflix, Inc. (NFLX) and Salesforce.com, Inc. (CRM) were also top investment choices for TD Ameritrade clients during the month of June.

Kinahan pointed to President Trump's tariffs and the impact they may have on global trade as one of the drivers of volatility for the rest of the year. After all, with the trade tensions between the U.S. and China intensifying, the market isn’t clear what the impact will be. That should create more movements in stocks, even if the VIX isn't up that much in recent weeks. "We'll see weeks like we have been seeing when the market moves up and down pretty quickly," said Kinahan.