In March 2009, US unemployment rate was around 10%, the global credit markets were completely frozen, high yield bond defaults were around 11% of the HY market (record default ratio), and the S&P500 stood at approximately 666 in early March 2009. Sentiment then was EXTREMELY bearish as measured by the AAII Bull/Bear ratio…and for good reason.
Today the unemployment rate is at <4%, the economy is humming, corporate earnings have been solid, 29 deals merger/acquisitions deals announced this week of at least $5 billion in value each, airline flights are full, you can’t get into a restaurant, and traffic is back to worse than pre-pandemic levels here in Boston. None of that matters right now. Until the Fed starts to go faster with regards to rate hikes, the market will continue to experience above average volatility.
Investor sentiment is a great counter indicator, and it is flashing EXTREME again. Perhaps beyond extreme. The Bull/Bear ratio is now below the reading of 2019 COVID pandemic, 2018 Fed/Powell messaging miscues, 2016 Brexit, 2015 China economic slowdown, 2013 Fed taper tantrum, 2011 US stock market flash crash, and now BELOW the March 2009 bottom of all global risk assets during the Great Financial Crisis. In today’s market there is currently a massive disconnect between the economy, spending, a solid earnings outlook, and the equity market.
Forward risk assts returns from EXTREME readings of bearishness have historically proven to be above average looking out 6mos, 12mos, 24mos, 36mos.
Construction spending looks to be slowing and some ISM manufacturing prices paid data looks like inflation pressures are peaking. I am not quite ready to call “inflation has peaked” but it certainly feels like inflation may have peaked.
Bull/Bear ratio now more bearish than March 2009 – the darkest days of the Great Financial Crisis
Chief Investment Officer
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