Investors hate stocks-- again.
Amid a six-year bull market that’s notable mainly for how little conviction there is in it, equity sentiment is plunging at a historic rate, falling by some measures at the fastest pace since Federal Reserve Chairman Paul Volcker had just finished pushing up interest rates in the 1980s. The cost to hedge against stock losses is soaring, valuations are contracting, and bearishness among professional stock handicappers is rising the most in three decades.
Fret not. All of this is good news for bulls, if history is any guide. Since 1963, the Standard & Poor’s 500 Index has advanced an average 11 percent in the year after newsletter writers surveyed by Investors Intelligence were as pessimistic as they are now, data compiled by Bloomberg show. That compares with an annualized return of 8.3 percent.
Skepticism is one thing the rally since 2009 hasn’t lacked -- and it may be the best thing stocks have going for them as corporate profits fall, concerns deepen over China’s travails, oil and commodities plunge and the Fed turns more pessimistic on global growth. Some traders even say they see bargains after S&P 500 posted its first 10 percent retreat in four years.
‘Least-Believed’
“This is the least-believed economic recovery and the least-believed bull market of our careers,” said Bob Doll, chief equity strategist at Chicago-based Nuveen Asset Management, which oversees $130 billion and bought stocks during the August selloff. “The nervousness means people have stepped to the sidelines. The question is, who is left to sell? Everybody who has cash is a potential buyer.”
Investors have bailed out of stocks at every sign of trouble since 2009, from the euro crisis to ebola, with the latest catalyst coming from China’s devaluation of its currency. The distrust has been a barrier to euphoria, a quality that historically is the bigger threat to bull markets.
Fear reigns, spreading faster than any time since 1984 as the S&P 500 tumbled 10 percent over four days in August. At the start of this month, the bull-to-bear ratio in Investors Intelligence’s survey of newsletter writers fell to a four-year low of 0.9. In April, when bulls dominated the market that was heading for an all-time high, the ratio reached 4.1.
Options, Shorts
The S&P 500 fell last week, as the Fed left interest rates near zero, sparking concern over the strength of the global economy. The benchmark index for equities rose 0.8 percent Monday at 9:49 a.m. in New York, trimming its loss for the year to 4.2 percent. The gauge is down 7.4 percent from its record 2,130.82 reached in May.