Rising investor pessimism is the opposite indicator
“The bull market is born of pessimism, grows with skepticism, matures with optimism, dies with happiness.”
These words often result Isl John Templetona legendary investor and mutual fund pioneer who founded the Templeton Growth Fund. It is not clear that Templeton actually spoke the exact phrase, but it concisely captures the approach that led his fund to one of the most successful investment tools of the 20th century.
If Templeton had not shuffled this deadly coil in the summer of 2008, He's probably going to be a buyer now. Latest research from American Association of Individual Investors (AAII) said individual investors have been the most bearish since November 2023, with 47.3% of respondents being pessimistic about stocks for the next six months and bullish by just 28.4%. .
To make it clear, Historical average is 37.5% bullish Bearish at 31.0%. A month ago, 43.4% were bullish and 29.4% were bearish. A rapid increase in pessimistic emotions.
AAII has been researching investors weekly for over 35 years. Perhaps the most important lesson from all these years' surveys is Investor sentiment is usually the opposite indicator. The best time to buy stocks is usually when you are high in bearish and low in bullishness.
The latest example of this can be seen in market performance following the last height of the bearish in November 2023. For the next six months, S&P 500 returned 21.5%. When Time Horizon was expanded to 12 months, the S&P 500 rose 50.5% from November 2023.
Fund managers are bullish, but not so much for US stocks
Research by the Bank of America Global Fund Manager shows that institutional investors are still bullish, but are worried about the US stock market. 89% say US stocks are overvaluedthe most since April 2001. 34% say that global stocks are the best performing assets, while 22% say they're like gold. Only 18% say they expect US stocks to perform best.
One of the terrifying drivers now is very clear World Trade War. 42% of managers in the Fund Manager Survey say this is the biggest risk from around 30% this month. 58% say that gold is the best performing asset in the trade war.
if Trump's mutual tariffs As we have argued, it is likely to create a path to a more freer and more sustainable global trade environment. We expect this to promote US stock gatherings.
Of course, there are still many things that don't work out. Perhaps the biggest risk is that Capitol Hill lawmakers can bangle their budgets. Failed to make Trump's tax cuts permanent. Unfair cuts by the Federal Reserve last year could push inflation higher and force the Fed to raise fees. Federal courts could hamper the Trump administration's growth agenda for at least a while.
The wise man once said he was the greatest investor Buy from pessimists and sell to optimists. What the research suggests is that there are many pessimists to buy now.
