Bearish Sentiment Overtakes Bulls; A Contrarian Buy Signal?

Rocky White

Wed, Mar 19, 2025, 5:00 AM 2 min read

There has been a momentous displacement successful sentiment among the concern newsletter class. For the archetypal clip successful astir 2 and a fractional years, the Investors Intelligence (II) survey shows much newsletters are bearish connected stocks than bullish. II has information going backmost to the 1970s and tracks implicit 100 autarkic newsletters, categorizing them arsenic bullish, bearish, oregon short-term bearish but longer-term bullish. With decades of humanities data, the survey provides invaluable penetration into however concern professionals comprehend the market. This week, I’m examining what these sentiment shifts person meant for stocks going forward.

The illustration beneath shows the illness of bullish sentiment comparative to bearish sentiment successful the II poll. The past clip the bulls-minus-bears enactment was beneath 0%, indicating much bearish newsletters than bullish, was precocious 2022. Looking astatine the chart, it appears that erstwhile astir newsletters are bearish, the marketplace is astatine oregon adjacent a buying opportunity.

To backmost this up with data, I examined past instances wherever the bulls-minus-bears speechmaking dropped beneath 0% for the archetypal clip successful astatine slightest six months. Since the aboriginal 1970s, this has occurred 24 times. The array beneath summarizes the S&P 500 Index’s (SPX) show pursuing these signals.

The results corroborate what the illustration suggests. The SPX has averaged a summation of astir 12% implicit the adjacent six months aft these signals, with 83% of those returns positive. For comparison, the emblematic six-month instrumentality for the scale has been 4.54%, with 70% of returns positive. In each timeframe, from 1 period to 1 year, the SPX has outperformed its emblematic humanities returns aft the II survey shows much bears than bulls.

Another mode to look astatine the information reinforces the thought that the II canvass is simply a contrarian bargain signal. When the bulls-minus-bears speechmaking has been negative, arsenic it is now, the SPX has averaged a 14% summation implicit the adjacent year. When bullish sentiment moderately outpaces bearish sentiment, the scale has averaged an 8.5% gain. When newsletters are overwhelmingly bullish, the scale has averaged conscionable a 7.35% instrumentality implicit the adjacent year. The S&P 500 has consistently outperformed crossed each timeframes erstwhile the II survey reflects much bearish than bullish sentiment. If past repeats, this inclination suggests a buying accidental successful the existent market.