In an earlier post, we detailed the improvements in AAII’s weekly sentiment survey. Another sentiment survey from Investors Intelligence also saw a substantial improvement in investors reporting as optimistic this week. The percentage of bullish newsletter writers in the Investors Intelligence survey rose 5.3 percentage points this week to 52.9%. That only brings it back to similar levels to last month, but it was also the largest week over week increase in bullish sentiment since a 5.4 percentage point increase in June of last year. A more notable move in this week’s survey was that of respondents looking for a correction. While there have been far higher readings over the past few years, similar to bullish sentiment, last week’s reading of just over 33% was the highest share of respondents expecting a correction since October. But as investors reassessed the negative implications of the coronavirus, this has come crashing down falling 5.4 percentage points week-over-week.
As shown below, while that 5.4 percentage point decline was far from the largest such decline in the history of the data going back to the late 1990’s (a 13.2 percentage point decline in June of 2012 holds that title), there have only been 29 other times that this reading on sentiment had fallen more than 5 percentage points in a single week. The most recent occurrence was in June of last year.
The performance of the S&P 500 following similar declines in ‘correction’ sentiment in the past has been mixed. While the S&P 500 has outperformed versus all other periods one week and 3 months later, one month, six months, and one year later have seen returns more inline or worse than other periods on a median and average basis. In other words, when fewer newsletter writers are looking for a correction or market pullback, better than average returns become slightly less likely. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.