Signal stock

‘So bad, it’s good.’ This beleaguered stock market has a big trump card on its side, strategists say.

A tough month for equities is coming to an end, and many investors are unlikely to be sad to see the downside. And on the last day of April, trading looks weak as Apple and Amazon failed to raise the bar in a mixed season for tech earnings.

Our call of the day comes from Keith Lerner, chief market strategist at Truist Advisory Services, who said “depressed” investor sentiment is the reason he hasn’t taken an all-negative stance on stocks yet.

“Indeed, with markets, it’s not about good or bad — it’s about better or worse relative to expectations. When expectations are low, a little good news can go a long way. This is why markets tend to bottom out when fear and uncertainty are at the extreme,” Lerner said in a recent note to clients.

He lowered his stance on equities to neutral in April after two years of a positive stance, noting that if the range of potential outcomes is wide, the risk/reward ratio is less positive.

He pointed to the latest survey from the American Association of Individual Investors (AAII), which showed the percentage of investors with a negative/bearish outlook jumped to 59.4%. It was the highest since early March 2009, just weeks away from a major stock market low after the decline of the 2008-09 financial crisis.

“To be fair, investors were correctly negative in January 2008 at the start of this market downturn,” he said.

The percentage of bullish investors is currently at 16%, also close to a record low, leaving the bullish/bearish spread at -43%, a level that has been breached twice in the last 35 years – at the fall 1990 and March 2009 period, Lerner said.

Truist Consulting Services


A similar theme was heard by Thomas Lee, founder of Fundstrat Global Advisors, who told clients that the AAII sentiment survey was a “major background signal”, based on history. “So bad, it’s good,” he said.

Lee provided this chart showing when such a low reading marked a stock market low:

A footnote from Lee is that the AAII survey tends to sample older investors, not the Reddit crowd.

Lily: Baby boomers are leaving the stock market. Here’s what happens next.

Lerner adds further evidence of investor negativity, such as the $45 billion flowing from equity funds over the past two weeks. “It’s an extreme that we’ve also seen in times of heightened uncertainty and volatility,” Lerner said.

For example: post-Lehman Brothers bankruptcy, U.S. debt downgrade, COVID-19 pandemic lows, and two months to the 2020 U.S. presidential election. While Lehman Brothers’ signal was “premature,” strong price returns followed other periods, he said.

In short, Lerner said Truist follows the “weight of evidence approach,” which tells him that depressed investor sentiment and a “low barrier to positive surprises” are the stock market’s main strengths.

The buzz

AmazonAMZN,
+4.65%
is down 8% in premarket after its first loss in seven years. AppleAAPL,
+4.52%
is down more than 2% after the tech giant topped profits and set a revenue record, but warned of billions in additional costs due to supply chain issues.

TeslaTSLA,
-0.45%
the stock is higher after CEO Elon Musk tweeted that there were no more sales expected at this time, having sold for nearly $4 billion.

Revenues are rolling out of Chevron CVX,
+3.55%,
ExxonXOM,
+3.02%,
Honeywell HON,
+1.92%,
AbbVie ABBV,
-0.83%,
Bristol-Myers Squibb BMY,
+1.83%
and Colgate Palmolive CL,
+0.66%.

Opinion: Big Tech isn’t winning as big anymore, but these two stocks still look safe

Elsewhere, Intel INTC,
+3.58%
is down after the results, while investors cheer Roku ROKU,
+8.11%
earnings. Robinhood HOOD shares are also sinking,
+6.10%,
who missed the forecast and said fewer people were trading on his app.

And Digital World Acquisition Corp. DWAC,
+7.88%,
The special-purpose acquisition firm, which is buying the company behind Truth Social from former President Donald Trump, is booming after Trump resurfaced with a post on the platform.

The Federal Reserve’s preferred gauge of inflation – the Core Personal Consumption Expenditures Price Index – leads the way, followed by the University of Michigan’s Consumer Sentiment Index.

The Department of Labor is concerned that Fidelity’s plan to allow Bitcoin in 401(k) plans could be risky for retirees.

The Ukrainian leader accused Russia of trying to humiliate the UN by firing missiles at kyiv during a visit by Secretary General António Guterres. And efforts to extricate trapped civilians from besieged Mariupol continue.

The Chinese government has promised more support for its economy, as the country battles COVID-19 outbreaks.

The steps

YM00 Stock Futures,
-0.39%

ES00,
-0.93%

NQ00,
-1.30%
are lower, with bond yields TMUBMUSD10Y,
2.852%

TMUBMUSD02Y,
2.670%
fixed prices and CL00 crude oil,
+0.82%
slightly higher. Gold makes a pop, while the dollar DXY,
-0.47%
cooled off after Thursday’s massive rally, especially against the yen USDJPY,
-0.65%,
which continues to decline. BitcoinBTC USD,
-2.67%
and other cryptos are up slightly.

Table

Naomi Poole and a team of Morgan Stanley strategists have rolled out a new market sentiment indicator (MSI) to offer “tactical advice on ‘risky assets’.” It aggregates survey, positioning, volatility and momentum data to gauge market stress and sentiment.

The MSCI All-Country World Index (you can track it through the iShares MSCI ACWI ACWI exchange-traded fund,
+2.09%
) is used as a proxy for the performance of risky assets.

“Our analysis suggests that improving/deteriorating sentiment is a more powerful signal for futures yields than just extreme levels,” Poole and the team said. Using the stress level and direction, the MSI is currently neutral and not yet giving buy signals, they said.

Stock tickers

Here are the most traded tickers on MarketWatch as of 6 a.m. EST:

TSLA,
-0.45%

You’re here

AAPL,
+4.52%

Apple

AMZN,
+4.65%

Amazon

EMG,
-0.41%

GameStop

CMA,
-1.32%

AMC Entertainment

NIO,
+1.01%

NIO

fb,
+17.59%

Metaplatforms

BABA,
+2.93%

Ali Baba

NVDA,
+7.42%

Nvidia

TWTR,
+0.97%

Twitter

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