A stock market reading so bearish, it's bullish: Morning Brief

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Wednesday, January 4, 2023

Today’s newsletter is by Julie Hyman, anchor and correspondent at Yahoo Finance. Follow Julie on Twitter @juleshyman. Read this and more market news on the go with Yahoo Finance App.

It’s a market truism that feels like an old “Seinfeld” episode: Investor sentiment is so bad, it must be good. 

That is, when everyone thinks stocks will keep going down, sometimes it’s a contrarian indicator they might be set to go up. 

And sentiment is certainly lousy right now. 

While most strategists don’t think the S&P 500 will have another down year, they are forecasting anemic returns in 2023. Many economists are predicting a recession. Meanwhile, consumers are confronted with decelerating but still-high inflation.

But in a report out Monday, strategists at Bank of America Global Research note the firm’s “sell-side indicator” suggests all of the above could make today an attractive moment to buy stocks. 

The measure, which tracks strategists’ recommended allocation to U.S. stocks, is the closest it’s been to flashing a clear “buy” signal since late 2017.

“Wall Street is bearish. This is bullish,” wrote Bank of America’s team led by Savita Subramanian. “Wall Street’s consensus equity allocation has been a reliable contrarian indicator over time. In other words, it has been a bullish signal when Wall Street strategists were extremely bearish, and vice versa.”

According to BofA, at current levels its “sell-side indicator” suggests an expected price return for the S&P 500 of 16% over the 12 months. Historically, when the indicator was at current levels or below, stocks were higher a year later 95% of the time. 

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Bank of America’s gauge of investor sentiment suggests the time may be right to buy stocks. (Source: Bank of America Global Research)

Another sentiment measure closely watched by Wall Street is the American Association of Individual Investors’ weekly survey. The survey’s latest reading for the week ended December 28 showed some 47.6% of investors were bearish, well above the historical average of 31%.

And this, too, is a pretty good contrarian indicator. The AAII survey reached its most recent bullish high for the week ended January 5, 2022. Indeed, stocks hit highs for the year right out of the gate. 

The survey’s most bearish recent reading was 60.9% for the week ended September 21, 2022. The S&P 500’s low for the year was reached on October 12.

Of course, there are can be even more sophisticated sentiment indicators professional technicians use to judge the market’s most likely next move. (We’re getting into real Jared Blikre territory here.)

Jonathan Krinsky, chief market technician at BTIG, for example, thinks the AAII survey isn’t telling the full story, and suggests there are signs recent selling hasn’t totally worn out investors. Which leaves more potential downside on the table. 

“While AAII sentiment remains bearish, [investors’] stock allocation ticked up in November to 62.35%,” Krinsky wrote in a recent note. “Retail investors continue to ‘talk bearish, but act bullish.’ This suggests we have yet to see full capitulation.”

On Tuesday, stocks opened 2023 with losses.

What to Watch Today


  • 7:00 a.m. ET: MBA Mortgage Applications, week ended Dec. 30

  • 10:00 a.m. ET: ISM Manufacturing, December (48.5 expected, 49.0 during prior month)

  • 10:00 a.m. ET: ISM Employment, December (48.4 during prior month)

  • 10:00 a.m. ET: ISM New Orders, December (47.2 during prior month)

  • 10:00 a.m. ET: ISM Prices Paid, December (42.9 expected, 43.0 during prior month)

  • 10:00 a.m. ET: JOLTS Job Openings, November (10.050 million expected, 10.334 during prior month)

  • 2:00 a.m. ET: FOMC Meeting Minutes, Dec. 14

  • Wards Total Vehicle Sales, December (13.40 million, 14.14 during prior month)


  • UniFirst Corporation (UNF)

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