Bears are taking control of the stock market as oil prices jump and Treasury yields climb. About 53% of individual investors were bearish on the six-month outlook for stocks, according to the latest edition of the closely followed weekly survey by the American Association of Individual Investors, up about 14 percentage points from a week ago and the highest level of pessimism since May of last year. A little less than 29% described themselves as bullish, the fewest in about a year, AAII reported. The share of bullish investors fell by about 10 percentage points in one week. “When it gets really extreme in one direction, it’s worth taking note,” Peter Boockvar, investment chief at One Point BFG Wealth Partners, said in a note to clients. “That was this case this week.” Concern is washing over Main Street investors as crude prices have reaccelerated and the 10-year U.S. Treasury yield has stayed in the vicinity of 5% in recent weeks amid the war with Iran. JPMorgan’s commodities team on Thursday threw up its hands, saying it would even stop trying to forecast when and how an end to the conflict would come. Contrarian delight But from a contrarian point of view, heightened bearish sentiment in the AAII poll is approaching levels typically associated with market lows, Keith Lerner, investing chief at Truist Wealth, said in a Thursday note to clients. Lerner said that stepped up pessimism is occurring at the same time that market breadth falls close to numbers that also suggests a low is near, noting that the percentage of stocks above their 50-day moving average has dropped to 30%. Readings below that mark would suggest an oversold market, he said. Boockvar pointed to CNN’s Fear and Greed Index entering “fear” territory in recent days as also signaling weakening investor sentiment. Just a month ago, the index showed “greed” dominating. For his part, Boockvar said investors shouldn’t read too much into these sentiment indicators. The AAII reading, in particular, is his “least favorite stock market measure of the mood.” Readings of professional investors are more bullish, he added. “Bottom line, at least looking at AAII, from a contrarian perspective, we’re set up for an equity bounce,” Boockvar said. Lerner, similarly, said traders shouldn’t let these readings keep them from buying into the market. The upside potential of the lengthy bull market — one of the longest on record — still outweighs downside risk. The recent downturn in stocks, particularly in technology, offers an entry point for investors, Lerner said. While stocks rallied on Thursday , the broad S & P 500 benchmark is still on track to end lower for a second straight week, and the third week in five. “The weight of the evidence supports staying aligned with the primary market uptrend,” Lerner said. “A deeper pullback would potentially provide an opportunity to become more aggressive.”
