Anxiety about Greece and uncertainty about the timing of higher US interest rates may keep Wall Street on edge early next week, but one ray of hope for investors could be an unusually long streak of ambivalence on Main Street.
Seen by some as a contrarian indicator of future stock market performance, a weekly poll of individual investors showed positive sentiment for stocks remained below average for the 16th straight week despite a solid uptick in optimism.
The last time bullishness in the American Association of Individual Investors' sentiment survey remained below average for so long was in August 2012.
Many professional investors view enthusiasm among do-it-yourselfers as a warning that the market may be overheating. Conversely, widespread caution is often taken as evidence that stock prices are well grounded and not forming a bubble.
"The market climbs a wall of worry and if there's some bearishness out there it means there's potential buying power on the sidelines that could come back into the market," said David Joy, chief market strategist at Ameriprise Financial in Boston, where he helps oversee USD 815 billion in assets under management.
Indeed, individual investors have pulled USD 56 billion from US equity funds in the past 26 weeks, according to EPFR Global, which tracks fund-flow data.
The relative uptick in optimism detected in the latest AAII survey comes as Greek and euro zone officials make last-ditch efforts to avert a debt default, with a key meeting set for Saturday.
Wall Street's reaction ahead of previous deadlines in Greek negotiations has been muted compared to European financial markets, but with Greece at risk of missing a crucial repayment to the International Monetary Fund on Tuesday, some US investors are increasingly wary.
"We're coming up on zero hour for this crisis and it may well be that a number of investors will prefer to wait on the sidelines for the dust to settle," said Alan Gayle, senior investment strategist at RidgeWorth Investments in Atlanta, Georgia, which has USD 50 billion in assets under management.
While Greece's financial instability and the possibility that the US Federal Reserve could soon raise interest rates remain risks, Gayle, Joy and others said they still expect U.S. stocks to go higher over the medium term.
Several data points next week will give fresh reads on the health of US consumers in June as the Fed weighs when to increase rates.
On Thursday, Labor Department data is expected to show nonfarm payrolls increased by 232,000 in June, with the unemployment rate edging down to 5.4 percent from 5.5 percent in May. Consumer confidence is due on Tuesday and domestic car sales are due on Wednesday.
"The production side of the economy is doing okay," said Joy. "It's the consumer sector that's most important for us right now. And of course, Greece."
The strengthening economy suggests the Fed could raise interest rates this year even as inflation remains well below the US central bank's 2 percent target. Many economists expect a rate hike in September.
The S&P 500 and tech-heavy Nasdaq hit all-time highs in recent months, with markets bouncing back and forth in a limited range since around February as many investors fixate on the Fed.
Trading might be brisker than usual on Monday and Tuesday as some pension funds and mutual funds buy and sell shares to rebalance their portfolios ahead of the end of the quarter.
US markets will be closed on Friday ahead of the Fourth of July holiday.