- The stock market is within striking distance of breaking the record of consecutive closes at all-time-highs.
- But investors don’t seem fazed, with various sentiment indicators showing no signs of euphoria.
- Sentiment often follows price, with “greed” readings found near market peaks and “fear” readings found near market bottoms.
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The S&P 500 notched its seventh consecutive close at all-time-highs on Friday, putting it within striking distance of breaking the record streak of eight consecutive closes at new highs.
But investors don’t seem to care, based on various sentiment indicators that show no signs of euphoria in the stock market. This dynamic sets stocks up for further gains ahead, as there is plenty of room left for investors to get excited about stocks before hitting levels of greed and euphoria.
“Kinda dull. But you don’t sell a dull market,” Bank of America said in a Friday note, summing up the steady grind higher in markets over the past week.
Investor sentiment often follows price, with readings of “greed” or “euphoria” found near market peaks, and readings of “fear” found near the bottom of a market sell-off. This dynamic is why the indicators are considered contrarian, as it often pays to take the opposite view of the sentiment readings.
No signs of euphoria with the stock market at record highs suggests that there is further upside ahead for equities, as the market continues to climb a wall of worry and win over unconvinced investors.
Sentiment indicators that have shown no signs of euphoria or greed among investors include the CNN Fear & Greed Index, the Bank of America Bull/Bear indicator, and the AAII Investor Sentiment Survey.
The CNN Fear & Greed Index remains below 50, stuck in the “Neutral” zone over the past month. The index closed at 46 on Friday, and was only slightly higher than its “Fear” reading last week of 44. The index had an “extreme greed” reading of 99 in January 2020, just prior to the fastest bear market in history, and hit an “extreme fear” reading of 1 in March 2020, right around the pandemic bottom, lending credibility to its use as a contrarian indicator.
Meanwhile, the BofA Bull/Bear indicator has continued to fall in recent weeks to a reading of 6.4 from a cycle-high of 7.7 in February. A contrarian “sell” reading is generated once the indicator crosses eight, suggesting there is plenty of room left for investors to get bullish on the stock market.
Finally, bullish readings from the AAII Investor Sentiment Survey rose to 48.6% this week. While the survey shows a rise in bullishness that is well above its historical average of 38%, the reading is still below the April high of 52.7%, signaling there is still room for upside.
It isn’t the case, though, that investors have nothing to worry about when it comes to stocks. Rising inflation, higher interest rates, and a potential increase in taxes have served as overhangs for the market this year, and uncertainty regarding second quarter earnings results could also be weighing on investors.
But historically, when investors have been this bearish on the market when stocks traded at all-time highs, it’s usually been a solid contrarian indicator to buy stocks.