Stock market sentiment on Wall Street has turned sharply bearish, with Wells Fargo’s buy/sell sentiment gauge crossing the -1 level last week and Macro Risk Advisors’ market sentiment score dropping to around 27 from roughly 61. Goldman Sachs noted that hedge funds sold tech stocks at a record pace last week, while the S&P 500 fell nearly 2%, its biggest one-week decline since June. However, according to Wells Fargo’s historical data going back to 1998, the S&P 500 has returned 2.4% one month after sentiment reaches such bearish levels, with even stronger returns over the following three, six and twelve months. The current sentiment reading triggers a buy signal, suggesting that investors who were going to reduce their equity exposure may have already done so.
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