Forget fears of overvaluing the stock market, at least for now.
Sentiment is what drives prices in the SPDR S&P 500 exchange-traded fund, which tracks the largest US listed companies. New research shows that these sentiments are trending downward for the time being.
And that alone should be a reason to buy the stock.
Small investors were much less optimistic and more bearish in December 2021 than in December 2020, according to data from the American Association of Retail Investors that tracks sentiment.
The same is true for financial advisors and Wall Street analysts.
This is a bullish signal, JC Parets, founder of technical analysis firm AllStarCharts.com, wrote in a recent report. He writes the following:
- Sell-side analysts are bearish.
- Bearish financial advisors.
- Individual investors are bearish.
- The S&P500 is moving to an all-time high.”
It’s the last bullet that privately tells us. All other categories show an air of growing bearish sentiment.
Usually, when the majority of people in the market have the same view, stocks are likely to go in the opposite direction. In this case, that means up.
Yes, Parets is outperforming the stock and seeing a good rally ahead.
“We want to stay long S&Ps with a target of 5000,” he writes.
In other words, there is plenty of room (about 5%) for the S&P 500 to advance from its last level around 4773.
It adds more evidence pointing to credit premiums in the bond market. He points out that the additional interest that investors demand from corporate borrowers in return for what the government pays has decreased. This means that fixed income investors are now less concerned about the creditworthiness of US companies than they were a few weeks ago. It is also well known that bond traders tend to be more sophisticated in their investment decisions than most stock investors.
Parets explains his point succinctly, as follows:
- So who do you want to listen to?
- bond market?
- Or sell side analysts, financial advisors, and individual investors?
- It’s your decision.
- I think it’s quite obvious where I am.”