Pessimism rises on U.S. stocks

Pessimism about U.S. stocks among newsletter writers increased the most since July 2007, a bullish signal to analysts who track investor sentiment as a contrarian indicator of share performance.

The share of bearish publications among about 120 tracked by Investors Intelligence rose to 33.3 percent yesterday, the highest level in a year, from 23.7 percent a week earlier. The Standard & Poor's 500 Index rose 30 percent from Aug. 26, 2010, to April 29, 2011, amid Federal Reserve stimulus and better- than-expected corporate earnings. Some analysts consider higher pessimism a sign stocks will rise, theorizing there are more bearish investors to change their minds and purchase shares.

“It's good for stocks because it's a contrarian indicator,” Michael Gibbs, Memphis, Tennessee-based chief equity strategist at Morgan Keegan Inc., said in a telephone interview. His firm oversees about $80 billion in client assets. “Although these extreme readings seldom coincide with an exact bottom, they are pieces in a puzzle that forms the bottom,” he said. “Human emotion typically drops to the maximum amount of pessimism near market bottoms.”

The S&P 500 lost 15 percent between April 29 and yesterday, with the retreat accelerating in July after S&P stripped the U.S. of its AAA credit rating. Central bankers from around the world meet this week in Jackson Hole, Wyoming, for a conference that last year resulted in Federal Reserve Chairman Ben S. Bernanke on Aug. 27, 2010, signaling a second round of asset purchases. That $600 billion program expired in June after buoying markets in an attempt to help the U.S. economy recover from the worst financial crisis since the 1930s.

The percentage of surveyed newsletter writers who are bullish declined to 40.9 percent from 46.2 percent, its biggest decline in a year and the lowest level since the beginning of July. Advisers expecting a correction, or 10 percent retreat, fell to 25.8 percent from 30.1 percent for the biggest drop since Nov. 16. Investors Intelligence, based in New Rochelle, New York, has examined forecasts in newsletters since 1963.

The difference between bulls and bears fell to 7.6 percentage points from 22.5 percentage points last week, the lowest spread between the two since August 2010, according to Investors Intelligence.

The benchmark index for U.S. equities rose 0.3 percent to 1,165.68 at 1:54 p.m. in New York.