Traders at the New York Stock Exchange. (Photo: AP)

Investors’ bullish sentiment retreated slightly in the second quarter, E-Trade Financial found in its latest quarterly tracking survey.

Bullish sentiment stood at 63%, down two percentage points from first-quarter highs.

Fifty-five percent of investors believed the market would rise 5% or more this three-month period, down five percentage points from last quarter.

More than three out of five investors continued to believe the U.S. economy was healthy enough for the Federal Reserve to enact additional rate hikes this quarter.

Asked to select a movie title that best described how they felt about the market, investors held to their first-quarter choice, “Easy Rider.”

In a recent survey of fund managers, BofA Merrill Lynch found investors in a “bullish holding pattern.”

“In this sustained bull market, a pullback or correction is never out of the question,” E-Trade’s vice president of investment strategy, Mike Loewengart, said in a statement.

“With the Fed planning to reduce their balance sheet, while suggesting more hikes may be on the way, coupled with the legislative uncertainty around several policy reforms, investors may be lowering their expectations, if only to reflect if the market is peaking or gearing up for another run.”

Research Now conducted the online survey in early April among 958 self-directed active U.S. investors who manage at least $10,000 in an online brokerage account. The panel was broken into thirds: those who trade more than once a week, less than once a week but more than once a month and less than once a month. Sixty percent of panelists were men and 40% women.

Where Opportunities Lie

Loewengart noted that although talk of the so-called Trump trade (bullish trades in sectors that stand to benefit from the president’s proposed policies) had dominated U.S. markets, investors appeared to be refocusing on international equities.

True, investors still favor domestic markets, but their interest in both developed international and emerging markets rose in the second quarter amid attractive valuations and uncertainty in the U.S.

The new survey found that investors believed information technology offered the most potential, with interest in the sector surging to 46% in the second quarter from 34% in the previous one.

Loewengart said that although IT performance struggled post-election, market observers were pointing to strong fundamentals and robust consumer demand.

The energy sector, which started the year as one of the worst-performing sectors, recently picked up amid a tightening of international supplies and profit growth expectations ahead of earnings.

Although investor interest in energy declined to 45% from 53% in the first quarter, panelists in the survey still believed the sector offered potential this quarter.

— Check out Investors Optimistically Terrified, but Tactical Moves Exist on ThinkAdvisor.