Sentiment and overly bullish positioning remain short-term hurdles for the stock market
Too positive
Yesterday's big correction took place just at the time the Fear & Greed Index hits 80, Extreme Greed, for the first time since July 27th
July 27th also happens to be the day when the S&P 500 topped and fell ~6% in 3 weeks. However, the decline was driven by a more hawkish than expected Fed outcome. Now, the rally is being driven by what appears to be a "Fed pivot." Source: The Kobeissi Letter
The average market strategist's 2024E S&P 500 target is 4837 with EPS of $237 for a return of 2.5% (excluding dividends) and a P/E of 20.4
Source: Julian Klymochko
2024 is expected to be a year of interest rate cuts
Here's what's currently priced in markets of who does what when. Source: Bloomberg, David Ingles
Sentiment is turning bullish. Bears in the AAII sentiment poll moved from over 50% to under 20% during November
This is the lowest bearish % since Jan 2018 (which followed 2017's record 12 straight up months). What changed? Prices. The S&P 500 gained 8.9% in November, one of its best months ever. $SPX Source: Charlie Bilello
As of the end of October, investor's sentiment index was almost at maximum fear
But November turns out to instead be among one of the greatest months in stock market history. Source: J-C Parets
Hedging demand has fallen sharply with the cost to protect against a market selloff down by around 10%, or one-standard deviation, tumbling to the lowest ever in data starting in 2013
Demand for tail-risk hedges that pay out in an equity fall as precipitous as 30% has also dropped and is hovering around the lowest level since March.- Bloomberg
Wall Street biggest bear (BofA's Harnett) turns bullish as investors' sentiment turns extremely bearish (which is bullish from a contrarian perspective)
Indeed, with the S&P down in five of the past seven weeks, BofA's Bull & Bear Indicator just printed at 1.9 (extreme bearish), which according to Hartnett means that a contrarian buy signal for risk assets has been triggered.
