The headline averages of the major stock indexes appear to be riding high, sitting near all-time records set just a few weeks ago.
Even retail investors, as measured by the American Association of Individual Investors, are more bearish than bullish. In fact, bullish sentiment has been below its long-term average for 43 straight weeks.
This downtrodden outlook is unwarranted, according to Scott Colyer, the CEO and chief investment officer at Advisors Asset Management.
“I think there is a lot of pessimism out there,” Colyer told Business Insider. “There are a lot of skeptics out there trying to figure out why stocks have gotten to this level and when it’s going to fall. People are way too pessimistic.”
Colyer, whose firm has around $16.5 billion in assets under management, noted that this phenomenon is not necessarily new either.
“The people that said ‘sell in May’ were wrong, the people that said August is one of the worst months for stocks were wrong,” Colyer said. “Eventually, you have to ignore it.”
In order to have a serious drop, according to Colyer, you have to either have a deterioration in the outlook for earnings, weakening in the economic picture, or an outside shock. While the last of those three is tough to predict, stronger earnings data from the second quarter is an encouraging sign.
“You had projections that [S&P 500 aggregate] earnings were going to be down 7% or so for the second quarter,” Colyer said. “They were down just 2%, which is much better than last quarter, and we expect that they will go positive next quarter.”
Additionally, the sustained good (but maybe not great) economic data doesn’t point to a serious downturn. This, unfortunately, does not stop people from coming in and calling for a stock market drop.
“When you reach new highs, people’s instinct is to call a top,” Colyer said. “They say, ‘I’m going to find a reason that will cause me to leave the game.'”
Colyer said many investors are trying to “time the market,” which usually means figuring out when the top is in. The issue is that timing the market doesn’t usually work and can lead to investors missing some of the best days.
So Colyer’s basic advice to investors: Relax, and think long term.