Another Bear Bites the Dust
Given this backdrop, the results of this week's Investors Intelligence sentiment poll are not all that surprising. The percentage of bears in the poll dropped to 14.4% this week, the fewest number of bears since March 1987. At the same time, the spread between bulls and bears rose to 41.3%, the highest levels since April 2011 and October 2007, both significant equity market tops (see chart below).
Of course, this sentiment backdrop does not guarantee an immediate decline and there are always exceptions. Momentum in U.S. equities remains strong here and seasonality remains favorable in December (when the S&P 500 is up for the year through November, it has had a positive December 80% of the time). Also, some will note that despite a similarly low level of bears in March of 1987, the S&P 500 continued to move higher until August of that year and did not crash until October.
While this is certainly true, I still believe a more subdued outlook is warranted, particularly looking out longer-term in positioning for 2014.As you can see in the table below, we are currently at sentiment levels that have in the past been followed by the lowest average future returns for the S&P 500. For instance, the 12-month forward returns have been 1.6% following such high levels of bullishness, significantly below the average 12-month return of 8.3% in all time periods. What the data are suggesting, then, is that the last of the bears may be capitulating here just when caution is most warranted. Follow @pensionpartners This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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