Feeling Like CRAP – What Investor Sentiment is Saying Proper Now (and What it is Suggesting In regards to the Future)

I really feel like buyers are reaching some extent of dropping religion…and possibly that’s good.

However how is that measured? How will we acquire perception into the best way persons are FEELING concerning the market?

Nicely, you’ll hear a ton about “shopper sentiment” this week as a result of two reviews used to measure how persons are feeling are due this week.

On Tuesday, we are going to get the Client Confidence Index report, and on Friday, we are going to get the College of Michigan Client Sentiment Index report. These two upcoming reviews come on the heels of final week’s American Affiliation of Particular person Traders Sentiment Survey (the AAII Survey) – extra on that beneath.

Look, I don’t suppose anybody expects a ton of gleeful bullishness from the upcoming reviews, however what do they assist us perceive?

Listed here are a few of my ideas, views, and opinions.

In response to the AAII, the Sentiment Survey “affords perception into the opinions of particular person buyers by asking them their ideas on the place the market is heading within the subsequent six months and has been doing so since 1987.” Extra might be discovered right here.

So, by trying on the final AAII Survey, you’ll see as of 9/212022, nearly 61% of these surveyed are bearish concerning the upcoming six months out there.


investor sentiment


That’s a whole lot of investor concern and fear.

However…let’s put that into some historic context by trying again in time.

That is the fifth time since 1987 that the survey has hit a 60% bearish studying.

It’s additionally the very best degree of bearish sentiment because the very first week in March of 2009 when the share of bearish votes hit 70.3%.

BTDubs (By the best way), that date ought to ring acquainted as the underside of the Nice Monetary Disaster bear market. However what does that really inform us?

Whereas nothing will precisely predict the longer term irrespective of how excessive somebody’s conviction is, let’s at the very least have a look at what occurred the 4 different instances the votes hit a 60% bearish degree.

In 1999, the survey hit the 60% bear mark on 8/31/1990 and once more on 10/19/1990…that was the Gulf Conflict and oil value spike. I might have felt bearish, too. (The truth is, discuss bearish, I used to be in infantry coaching as a Marine Corps Second Lieutenant.)

Anyway, 12 months after every of these two dates, the S&P 500 was up 23% and 26%, respectively.

After that, the studying didn’t hit the 60% mark once more till 10/9/2008.

That ought to be a time most everybody remembers feeling fairly shitty…Lehman Brothers had simply collapsed, JP Morgan purchased Bear Stearns for what amounted to pennies on the greenback, and Merrill Lynch nearly went out of enterprise over a weekend and needed to be rescued by Financial institution of America within the 11th hour.

It was when one other advisor good friend of mine stated, and I’m not making this up, “I believe we may see the S&P 500 actually go to zero.”

Twelve months later, the S&P 500 was up 18%.

The 4th time the survey hit a studying of 60% or increased was on March fifth, 2009.

The proportion of bearish voters acquired to 70.3%, the very best bearish studying in survey historical past.

Twelve months later, the S&P 500 was up 67%.

What’s going to occur this time is one thing that nobody can forecast. Nevertheless, I’ll supply that it’s a seemingly respectable sign that we’re a lot nearer to the market bottoming out that a sign that issues will proceed to get a lot worse.

May issues worsen?

In fact they may. Nevertheless, let’s have a look at the S&P 500 afterward:

  • 30 days after the date the survey hit a 60% studying, solely ONE of these 4 situations posted a destructive return…at – 2.3%.
  • Ninety days later, two of the 4 situations had been destructive, and people losses had been -0.01% (so let’s be optimistic right here and name it zero) and -2.2%.
  • Six months later, there was one occasion the place the S&P 500 was destructive. And that loss was -5.6%…however that was six months after the ten/9/2008 survey, in order that is sensible because the market was climbing out of a deep gap.

It’s additionally price mentioning that of the 4 earlier instances the brink crossed 60%, it was clumped into the calendar yr of 1990 and basically a six-month window between 2008 and 2009.

To be clear, I’m not suggesting there aren’t authentic considerations – I’ll write extra about these within the coming days.

I’m simply suggesting that lots of people aren’t anticipating the market to get higher,

And admittedly, which will simply be some of the important dangers dealing with buyers proper now. Folks ought to preserve owing the shares of good firms which are nonetheless doing good enterprise. For those who don’t want the cash right this moment however are promoting these firms merely since you don’t like seeing them buying and selling on the similar degree as March of 2021, that’s a mistake.

Remember to take heed to our most up-to-date episode of our Off The Wall Podcast, the place Erin, Jessica, and I talk about this in additional element—it’ll be posted by shut of enterprise right this moment (9/27/2022).

Hold trying ahead.

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