Stock Market Sentiment Still Bearish — Keep Buying

Stock investors have turned even more bearish and that could be a signal that its time to buy.

In the week ended February 22, 39% of those polled said they were bearish, expecting stocks to drop, according to the American Association of Individual Investors. That was up from 29% of respondent the week before. Typically, 31% of those polled are bearish, so the recent figure is far more than that.

Typically, bearish outlooks by individual investors is seen as a contrary indicator, meaning that when individuals collectively think the market will drop, then its time to buy because the market will likely rise.

The current bearish stance is supported by a low bullish one, also. Just 22% of AAII members said they were bullish in the latest survey, way below the 38% historical average, the data show.

Put simply, the bears are more bearish and the bulls are less bullish than usual.

Its easy to understand why people may feel uneasy. There has been a slew of good economic data recently. We learned that the U.S. economy created more than half million new jobs in January, and the economy grew at a healthy clip of 2.7% in the fourth quarter, according to government data.

However, the Federal Reserve believes that a strong economy will undermine its war on inflation which is currently running high, according to multiple measures of price levels across the economy.

The worry is that the Fed will raise the cost of borrowing money some more and so hurt corporate profits. In turn, that could make stock investments less attractive.

That my be true. However, when most investors don’t think stocks will rally or even that they will drop, then often it is a good time to buy.

That’s why savvy investors might want to embrace the fear that’s clearly taken hold on main street and buy some more stocks, such as those held in the SPDR S&P 500 exchange-traded fund which tracks the S&P 500 index.