Good News For Stocks, Investors Small And Large Are Increasingly Bearish

NEW YORK, NEW YORK – SEPTEMBER 18: Traders work on the floor of the New York Stock Exchange (NYSE) … [+] on September 18, 2019 in New York City. As concerns about a global economic slowdown mount, the Federal Reserve on Wednesday cut interest rates by a quarter percentage point for the second time since July. (Photo by Spencer Platt/Getty Images)

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Forget worries that the stock market is overvalued, at least for the time being.

Sentiment is what drives prices in the SPDR S&P 500 exchange-traded fund, which tracks the largest U.S.-listed companies. Right now that sentiment is getting far more bearish, new research shows.

And that alone should be a reason to buy stocks.

Small investors were far less bullish and far more bearish in December 2021 when compared to December 2020, according to data from the American Association of Individual Investors which tracks the sentiment.

The same is true for financial advisors as well and Wall Street analysts.

That’s a bullish signal, writes JC Parets, founder of technical analysis company in a recent report. He writes the following:

  • “Sell side analysts are bearish.
  • Financial advisors are bearish.
  • Individual investors are bearish.
  • The S&P500 is breaking out to new all-time highs”

It’s the last bullet that’s particularly telling. The other categories all show that there is an air of increasing bearish sentiment.

Typically, when a large majority of people in the market have the same view then it’s likely that stocks will go the opposite way. In this case, that means up.

Yes, Parets is bullish on stocks and sees a good rally ahead.

“We want to stay long S&Ps with a target of 5000,” he writes.

In other words, there’s a lot of room (almost 5%) for the S&P 500 index to advance from its recent level around 4773.

He adds more evidence pointing to the credit premiums in the bond market. He notes that the extra interest that investors demand of corporate borrowers versus what the government pays has declined. That means that fixed-income investors are now less worried about the creditworthiness of corporate America than they were a few weeks ago. Its also well known that bond traders tend to be far more sophisticated in their investment decision-making than most stock investors.

Parets explains his view succinctly, as follows:

  • “So who do you want to listen to?
  • The bond market?
  • Or sell side analysts, financial advisors and individual investors?
  • You decide.
  • I think its quite obvious where I stand.”