When Investors Fear the Worst: What It Really Means

By Jeff Cox, CNBC.com Senior Writer

NEW YORK ( CNBC) -- Consumer nervousness over their stock portfolios is reaching an apex, which actually could mean good news for the market in the long run.

The most recent Conference Board consumer confidence survey, delivered Tuesday morning, contained an interesting nugget about worry over the state of equities.

The report found that the percentage of those who believe stock prices are going to fall shot up from 32.4% to 42.6%.

The 10.2 percentage point surge represents something of a landmark.

Looking at data back to 1987, there have been only seven occasions where the rise in stock market fortunes has eclipsed 10 percentage points in a month.

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On six of those occasions, the Standard & Poor's 500 has gained after six months, with the average return at 10.2%, according to research from Bespoke Investment Group.

Add the Conference Board survey, then, to the list of reliable contrarian market signals.

"I would like to see more negative sentiment. Then the market goes up," says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh. "We're stuck in a trading range...You need to get that pessimism on the retail retail side to get the market to break out of the range."

On five of the seven times, the index has gained after three months with the average at 5.1%, though the one-month return has been a loss of 0.3 percent, with losses on four of the occasions, Bespoke found.

That latter figure -- and to some extent the long-range effects of a sharp downturn in sentiment -- jibes with the feeling of some market professionals who think investor worries are likely to escalate yet.

"There's a lot of bad news out there to digest," says Brian Gendreau, market strategist at Cetera Financial. "There's potential for sentiment to get worse before it gets better."

Other sentiment gauges reflect the feelings in the Conference Board survey.

Market bears outnumber bulls 36% to 33%, according to the latest American Association of Individual Investors poll, which found both levels above historical norms.