Following one of the worst December performances on record, U.S. stocks are rallying to start 2019 and an overlooked sentiment signal could be indicating more upside is on the way for the S&P 500 and the corresponding exchange traded funds.
Those include the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and the Vanguard S&P 500 ETF (NYSEArca: VOO).
SPY, the world’s largest ETF, seeks to provide investment results that correspond generally to the price and yield performance of the S&P 500 Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index, with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index.
“For the first time in nearly three years, the weekly Investors Intelligence (II) survey showed more market newsletters were bearish on stocks than bullish,” according to Schaeffer’s Investment Research. “The survey started in 1963. II analyzes more than 100 independent newsletters and determines whether they are bullish or bearish on the stock market (they also have a third designation of those that are short-term bearish but longer-term bullish). In other words, they have a good amount of history on how investment professionals feel about the market. This week, I’ll look at how the stock market performs when the II sentiment survey behaves like this.”
Important Catalysts
Last week, markets soared as job growth surged to 312,000 during the month of December, handily beating economists’ expectations of 176,000 nonfarm payrolls added. The data caps off what’s been a rough start for the capital markets in 2019 amid global growth concerns.
Still, investors are displaying apprehension toward equity ETFs to start the new year. Since the start of 2019, seven of the top 10 ETFs in terms of new assets added are fixed income funds. Conversely, eight of the 10 worst offenders in terms of assets lost are equity funds, including SPY.
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Still, the recent extreme reading in the aforementioned Investors Intelligence survey could be a sign ETFs like SPY are ready to add to recent gains.
“The data confirms our eyes. The S&P 500 averages a gain of 8.76% over the next six months after these signals, with three-fourths of the returns positive. The second table shows the typical six-month return has been 3.88%, looking at anytime data since 1965, with about 68% of the returns positive. Looking at the three- and six-month returns, the summarized returns after a signal beat the typical returns in every single data point, from average return to average negative,” according to Schaeffer’s.
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