Odaily Planet Daily report: Retail investor bearish sentiment has reached a multi-year high, while institutional positioning remains significantly lagging. Behind the unprecedented disconnect between fundamentals and capital flows in U.S. equities, analysts predict a rare "Wall Street expectations gap" is about to erupt. Last week, the S&P 500 index posted a cumulative gain of 22% since late March and surpassed the 7,700-point mark for the first time in history. As investors digested the latest earnings reports, the benchmark index closed essentially flat on Monday.
Strategists at 22V Research have observed a significant divergence between the AAII Bull-Bear Index and the firm’s proprietary economic data index, which tracks U.S. macroeconomic releases. The firm’s model suggests that the current valuation discrepancy implies potential gains of 1.6%, 5.1%, and 7.8% for the S&P 500 over the next one, three, and six months, respectively.
Dennis DeBusschere, President and Chief Market Strategist at 22V Research, wrote in a report to clients: “Current investor sentiment, relative to economic data readings, suggests that market returns will be above normal levels.” Similarly, Alastair Pinder, Global Equity Strategist at HSBC, noted that the multitude of macroeconomic issues that have emerged over the past several weeks have indeed given investors ample reason to question the current stock market bull run.
Taking these signals together, under the backdrop of macroeconomic concerns tempering market irrational exuberance, a rational, subdued environment has emerged, providing a healthy foundation and sufficient buying power for the continuation of the U.S. stock market bull run. (Bloomberg)