Pessimism toward U.S. stocks is almost as prevalent as it was at last year’s lows, according to two gauges of investor sentiment that suggest the market may be due for a rebound.
The CHART OF THE DAY displays the results of weekly surveys by the National Association of Active Investment Managers and the American Association of Individual Investors since the beginning of 2009. Each appears in a separate panel.
This week’s reading for the manager index was 13.47, the lowest since March 2009, when the latest bear market in stocks ended. Survey responses can range between 200, indicating that managers are borrowing to profit from stock-market gains, and minus 200, showing the use of leverage to bet against shares.
The top panel tracks the active-manager readings, and the bottom panel shows the percentage of bulls among respondents to the survey of individual investors. The latter dropped this week to 20.9 percent, also the lowest level in 16 months.
“This is a positive development” because it signals that this week’s advance in stocks will last, according to a posting yesterday on the Traders Narrative financial blog. The Standard & Poor’s 500 Index rose 4.7 percent in the past three days after dropping 16 percent from April 26 through July 2.
Many analysts view investor sentiment as a contrarian indicator. They see extreme pessimism as bullish, based on the assumption that optimism will eventually return and demand for stocks will rise accordingly.
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