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NOT SINCE THE 2022 BEAR MARKET WAS ENDING HAS INVESTMENT ADVISOR SENTIMENT BEEN THIS BAD

The American Association of Individual investors (AAII) produces a weekly survey of stock market sentiment among its members. The survey is widely used as a contrarian indicator.

Last week, AAII reported that bulls were at their lowest level since the Silicon Valley Bank panic was playing out in March 2023.

Investors Intelligence (II), a global investment service, also releases a weekly sentiment survey which is also closely followed, and, at extremes, may also be useful as a contrarian indicator.

II, however, surveys independent market newsletter writers and assesses each author's current view on the market: bullish, bearish, or correction camp.

According to the most recent II data, just 27.6% of investment advisors are bullish, while 34.5% of advisors are bearish. The percentage of advisors expecting a correction is 37.9%. Thus, 72.4% of advisors are, in some way shape or form, negative on the market:

Therefore, the spread between bulls and the combined total of bears and the correction camp is now -44.8%, which is the lowest reading since a -50.0% in early October 2022. The S&P 500 index .SPX ended its 2022 bear market on October 12, 2022 (-25.43% on a closing basis).

Of note, spread troughs around the time the SPX was bottoming in February 2016, December 2018 and March 2020 were at -50.6%, -40.2% and -39.8%. In February 2016, the SPX ended a 14.2% decline on a closing basis. In December 2018, the SPX ended a 19.8% decline on a closing basis, and in March 2020, with the COVID crash, it ended down as much as 33.92% on a closing basis.

In terms of the current decline, on Tuesday, the SPX ended down 9.31% from its February 19 record close. On an intraday basis, the benchmark index has fallen as much as 10.07%.

If this spread can begin to recover and move back into positive territory, it may coincide with a resumption of SPX strength, and suggest the worst has past in terms of the level of advisor concern over the market's prospects.

If the spread continues to fall deeper into negative territory, amid intensifying fear among advisors, it may coincide with greater S&P 500 weakness. However, an even more negative spread would suggest an even stronger contrarian signal, in terms of the market being potentially ripe for an upward reversal.

(Terence Gabriel)

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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:

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WALL ST'S WOBBLES: RECESSION OR ROTATION? - CLICK HERE

BUY THE DIP, SAYS BARCLAYS ON DEFENCE - CLICK HERE

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UKRAINE TALKS LIFT EURO BUT TARIFF WORRIES LINGER - CLICK HERE

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)