Recent observations by Bespoke Investment Group reveal a sharp shift in stock investor sentiment, evidenced by a variety of fear indicators showing a pervasive unease, amid anxiety that appears unexpectedly heightened.
Markers of economic uncertainty have intensified, with the Economic Policy Uncertainty Index—developed by economists Scott Baker, Nick Bloom, and Steven J. Davis—reporting surges surpassing even the tumultuous period of the COVID-19 crisis.
The U.S. stock markets took a hit last Friday following a dip in February’s consumer sentiment index to its lowest point since November 2023, as reported by the University of Michigan. Similarly, the Conference Board’s consumer confidence index noted a drop of 7 points in February, now at an eight-month low of 98.3, which rattled investors.
Distinctly portraying the negative sentiment, CNN’s Fear & Greed Index plunged to 21, signaling “extreme fear”, based on market momentum, breadth, options activity, the junk-bond sector, and safe-haven asset demand.
Additionally, the American Association of Individual Investors’ weekly survey highlighted the pervasive bearish outlook, with bullish sentiment plummeting to 19.4%, the lowest level seen since March 2023 amid the Silicon Valley Bank’s collapse causing regional bank instability fears. Bearish sentiment, on the other hand, soared to over 60% from 40.5% the previous week, marking its sharpest weekly surge since August 2019.
Bespoke notes that, historically, extreme bearish sentiment coincides with significant market events such as the 1990 recession, Iraq’s invasion of Kuwait, the 2007-09 financial crisis, and the sharp declines in September 2022.
Investors are often mindful that significant fear tends to coincide with markets nearing their lowest points. However, the current apprehension is particularly noteworthy given that the S&P 500 SPX has only dipped around 3% from its all-time high on February 19.
Analysts point out that triggering investor fear requires much less in the present than in previous times, emphasizing that the prevailing sentiment is anything but complacency.
