Markets have rallied nicely off the early March lows that were triggered by the start of Russia’s war on Ukraine, but they are still dealing with a bout of depression.
The percentage of individual investors who consider themselves bullish has averaged just 23.9% over the past 10 weeks, according to the American Association of Individual Investors (AAII). Truist co-chief investment officer Keith Lerner points out this is the lowest average level of bullishness since the June 2016 Brexit referendum and one of the least optimistic readings since the survey’s inception in 1987.
So what has this level of depression historically meant for the stock market in the months ahead? You guessed it, a rally!
Historically, these low levels on the survey have been followed by consistent and positive returns on a six- to 12-month basis for the S&P 500, Lerner notes.
Only in the land of investing does bad equal good (maybe it does in other places, who knows).
“Part of the market’s resilience can be attributed to depressed investor expectations, which suggests markets are already braced for and discounting some of the known challenges. Markets have also taken the recent shift in Fed policy in stride given investors were already pricing in an aggressive rate path. Historically, the first rate hike tends to inject volatility, but it does not typically end a bull market,” Lerner explains of the market’s recent show of force.
All of this bizarre hopefulness could turn on a dime in the current environment, however.
President Biden is off to meet with European leaders this week on the Russia-Ukraine crisis. Any headline from that event could send markets tanking, easily. Nike’s earnings are out after the close today — the company is a bellwether, so a poor conference call and outlook will not be taken well by investors (chatter on the Street is bracing for a Nike warning). Fed members will likely be talking to the media circuit following their meeting last week, too.
But barring a headline disaster, Defiance ETF co-founder Sylvia Jablonski perhaps best summarizes the mindset in the markets that could endure in the near-term.
“Investors are starting to see a tradeable bottom,” Jablonski said on Yahoo Finance Live.
Happy trading!
