Investors are bearish on stocks. But this might actually be bullish.
In a report looking at investors sentiment, Goldman Sachs’ David Kostin and team find that investors are down on stocks, which could signal a near-term move higher.
The indicator includes data from the Commodity Futures Trading Commission (CFTC) on investors who are “net short” S&P 500 futures, or holding more bets that stocks will fall over bets they will rise.
In a note to clients on Tuesday, Goldman’s David Kostin noted that for the first time since CFTC started making the data public in 2006, investors have been net short stocks for seven straight weeks. The bearish positioning kicked in after the big sell-off in August.
The latest CFTC data show institutional asset managers and leveraged funds remain positioned net short across S&P 500 futures in aggregate. Our sentiment indicator stands at 10, suggesting near-term upside to the S&P 500. On a fundamental basis, our year-end target equals 2000.
Investor positioning as measured via S&P 500 futures contracts has been a statistically significant predictor of forward S&P 500 returns. Following readings of “stretched” investor positioning characterised by significant net long positions, the S&P 500 tends to trade down in subsequent weeks. Conversely, when investors have been positioned very lightly in futures, the S&P 500 tends to trade up in the following weeks.
The S&P 500 was trading at around 2,035 on Wednesday, so above where Goldman expects the index to finish the year.
But the latest positioning from investors is yet another bearish indicator that may in fact be bullish.