Newsletters Move Bullish in Investors Intelligence Survey

Since 1973, this has been a trustworthy contrarian indicator

Senior Quantitative Analyst
Jun 21, 2023 at 2:47 PM
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Investors, or more specifically, investment newsletters, are getting bullish on stocks. That’s according to the latest results of the weekly sentiment survey put out by Investors Intelligence (II). Their editors review over 100 published newsletters and determine the percentage of them that are bullish, bearish, or expecting a correction (short term bearish but longer term bullish).

Earlier this year, I wrote about the percentage of bulls minus bears crossing above 20%. That amount is now crossing the 30% threshold. This week I’m looking at how the S&P 500 Index (SPX) has performed when this poll has behaved similarly in the past.


A General Look at the Survey

The table below shows the average SPX return based on the II survey results. Since 1973, this has been a trustworthy contrarian indicator. In general, when the percentage of bullish newsletters slightly outpaced the bearish ones (by 12% or less), or when there have been more bearish newsletters than bullish ones (negative bulls minus bears), then the SPX has done better than average. When the bullish newsletters outnumber bearish ones by over 12%, the index underperformed going forward.

The latest report showed 54.3% of newsletters were bullish and 20% were bearish for a difference of 34.3%. That puts us in the 80th percentile. I highlighted that row in the table below, which is well into the bearish area of the table.


I had a theory that moving upward through the 80th percentile range would be bullish, compared to moving lower through that range. My thought process was that when the survey was showing increasing bullishness, we might be capturing earlier money flows, so there was more money coming. But when the sentiment line was decreasing, then we were in the stage of money flowing out of stocks, resulting in bearish returns going forward.

The numbers, however, do not support this theory. The first table below shows SPX returns in that 80th percentile when the bulls minus bears line is higher than six weeks earlier. The second table shows the returns from the 80th percentile when the current reading is lower than six weeks earlier. Based on this, it’s better when the bulls minus bears line is decreasing, at least in the next six months. The 12-month returns show slightly better results when the line is increasing.


Bulls Minus Bears Crosses 30%

The bulls minus bears line crossed above the 30% level last week for the first time since late 2021. Since 1973, there were 17 prior instances when the line crossed above 30% for the first time in at least six months. The table below shows SPX returns after these crosses.

Overall, there was slight underperformance after this indicator hit the 30% threshold. The average return was lower at each time frame listed except for three months in which the SPX gained 2.35% on average after a signal compared to 2.10% anytime. I don’t think the overall underperformance is significant enough to change anyone’s outlook.



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