It might have to get darker before there’s a dawn for stock-market bulls. A 7% pullback by the S&P 500 index
from its July 31 high has been relatively ordinary, but it’s been accompanied by a rout in the Treasury market that’s sent yields on 10-year notes
and the 30-year bond
to 16-year highs.
The stock market slump, meanwhile, has left investors increasingly pessimistic about equities. Extreme pessimism can be a contrarian indicator, and the investor mood is now at a level that’s typically preceded strong stock-market gains, noted strategists Ed Clissold and London Stockton of Ned Davis Research, in a Wednesday research note. Since 1994, the S&P 500 has risen at a 26.7% annual rate when NDR’s Daily TradingSentiment Composite has been in its extreme pessimism zone, they noted. But the outlook is complicated by the Treasury market rout, with investors — unsurprisingly, given the scope of the fall — even more pessimistic toward fixed income, according to NDR’s proprietary indicators. Treasury bond futures
dropped around 17.5% from their April 6 high through midweek. The NDR Daily Bond Sentiment Composite is also at its lowest level since March and d …