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Our last discussion of sentiment (see The Psychology of the Herd) generated a heated debate about whether everyone was too bullish or too bearish.

The short answer is: It depends upon who you ask.

For example, the WSJ's Marketbeat just reported:

"Optimism abounds among portfolio managers heading into 2007, according to Merrill Lynch’s most recent survey of global fund managers. While they believe global growth and corporate profits will weaken in 2007, the nightmare scenarios are being discounted, and investors see the so-called Goldilocks scenario coming to fruition as the pace of economic growth declines without a recession. “Compared to three months ago, 8% of our panel no longer think we are in a late-cycle environment, but are instead still in the mid-cycle phase,” they write.

Overall, fund managers see global growth receding in 2007, and for earnings to decline. But they believe corporate balance sheets are in good shape, with a net 55% saying balance sheets are under-leveraged. Oddly, while managers believe, on average, that stocks will be higher 12 months from now and believe equities are undervalued, most investors are taking slightly lower-than-average risks in their portfolio, suggesting a somewhat defensive stance — and their sector allocation proves it. Investors are overweight in banks, pharmaceuticals, energy and insurance. They’re underweight in consumer discretionary stocks and industrials."

Compare that cohort (albeit a professional and important one) with this subgroup: Bloggers. Ticker Sense's 2007 Financial Blogger Outlook shows a very modest forecast: financial bloggers expect the S&P 500 to rise 2.39% in 2007.

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When asking (or answering) the question "What is market sentiment like?", remember that your answer depends upon who it is you are surveying . . .

Source: What's Market Sentiment? Depends on Who You Ask