Fund Manager Sentiment Reaches Extreme Bearish Levels

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By Jon C. Ogg Updated Published
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Hedge fund managers have turned very bearish against domestic stocks.  The new data from BarclayHedge/TrimTabs Investment Research Survey showed that Bearish Sentiment on the S&P 500 rose handily in August to 42% versus what was only a reading of 27% bearish in July.  While this is often viewed as a contra-indicator, the report shows that over half of those surveyed believe that the economy is already or will slip into recession.  This is also coming at the start of September, a month that is said to be the worst month for stocks.

The bulls are drying up as well.  The report showed that bullish sentiment fell to 27% in August from 43% before.  This was the lowest reading in four months.

The recent drop (what they called a crash) in the S&P 500 was 16.8% from July 22 to August 8 is to blame.  Fund managers have also turned modestly bearish on the U.S. Dollar as bearish sentiment on the U.S. Dollar Index rose by 4-points to 34% in August.  Bullish dollar sentiment fell to 24% from 33%.

The scary part is on bonds, because it implies higher rates ahead even though the FOMC promised an exceptionally period being two years.  These fund managers remain cautious on long-dated Treasuries: 32% are bearish, 15% are bullish. That bond sentiment is as cash inflows have been strong, with recent auction demand being called ‘robust’ and with Treasury mutual funds and ETFs continuing to attract cash.

The report showed that about 56% think the economy is already in recession or that the economy will fall into recession soon.  Only 3% feel that economic growth is going to pick up.

Here is where this gets interesting, extreme bullishness is when many investors are supposed to get cautious.  When everyone is negative, that is when bargain hunters are supposed to start nibbling.

August saw a massive amount of share buybacks coming from companies, with the tally coming to $30 billion in just the larger deals and not including the dozens and dozens of smaller ones.  We also saw a wave of corporate CEO insider buying in August, but that stalled out after an early surge.  Banks are under extreme fire from all sides and Europe looks ready to crumble.

It is hard to find much to be bullish about other than that stocks are at levels which look and feel like extreme valuation troughs.  Most of the DJIA stocks now also out-yield the ten-year Treasury Note’s 1.95% yield.

JON C. OGG

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.

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