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Wall Street Sentiment Survey Might Have Called the Stock Market’s Turn
Investor pessimism peaked as the market began rallying in mid-June, according to Investors Intelligence’s survey
By Eric Wallerstein
Investors have scoured reams of data for evidence that 2022’s market rout is over. A six-decade-old survey might have made that call in June.
Investors Intelligence’s ratio of bullish advisers to bearish ones, known as the bull/bear ratio, fell to 0.60 during the week of June 21. That was the survey’s most-pessimistic reading since the week of March 9, 2009, when it fell to 0.56, according to Yardeni Research. That date also marked the lowest closing level of the financial crisis, with stocks falling 57% from their October 2007 peak before skyrocketing.
This year, the S&P 500 began rising on June 16 after closing down 24% from its peak on Jan. 3, 2022. It has since risen 13%.
Another indicator of investor sentiment, from the American Association of Individual Investors, has also shown increasing, though subdued, optimism. The indicator flashed its most bearish signal in late April when more than 59% of investors expected stocks to be lower over the next six months, compared with a reading near 39% for the week ended Wednesday.
The Investors Intelligence survey of independent investment newsletters, which launched in 1963, is considered one of Wall Street’s longest-standing contrarian indicators, meaning that if sentiment appears to have moved too far in one direction, some investors see it as a signal to do the opposite.
When the bull/bear ratio is below 1, according to Ed Yardeni, president and chief Investment strategist of eponymous Yardeni Research, it “is screaming that it is time to buy. It is one of the reasons I thought we probably made a bottom on June 16—the economic and financial situation is nowhere near as frightening as it was in 2009.”
Since the June 21, 2022, reading, sentiment has improved rapidly along with stock markets, with the S&P 500 posting its best monthly performance since 2020 in July. The proportion of bulls in the survey rose 10 percentage points to 41% this week, pushing the ratio to the highest reading since February at 1.37.
To be sure, many forces continue to pressure markets, with investors considering the possible effects of interest-rate increases, inflation and a darkening economic outlook. The latest bull/bear reading, however, remains between levels adherents consider extreme—roughly, 1 and 3.
Elsewhere, institutional investors seem to be getting back into the market after largely exiting for most of the year, according to Deutsche Bank estimates. Also, asset managers and hedge funds have pulled slightly back after placing the most bearish bets against U.S. stocks since 2016, according to a JPMorgan Chase & Co. analysis of futures tracking major stock indexes.
