The SPX is now trading back near its early March highs
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Monday started off with a bang on Wall Street, as investors savored a long-awaited, albeit temporary, tariff "truce" between the U.S. and China. The 115% cut in tariffs will last 90 days, leaving Chinese goods at 30% and U.S. goods at 10%. Sentiment surged in response, triggering the start of a now four-day (and counting) win streak for the S&P 500 Index (SPX).
The SPX is now trading back near its early March highs, more than 20% off its April 4 bottom of 4,835, gapping back above the 5,800 level for the first time since March. This week’s Investor’s Intelligence (II) survey suggests a bullish outlook as been brewing among traders, too. As a refresher, the II gathers and reports the weekly balance of where bears and bulls stand on the current market outlook.
Just like the week prior, there was an increase in optimism this report. The bulls minus bears line is above zero for the first time in six weeks. For reference, three weeks ago the bulls were at their lowest level since December 2008. We typically consider readings below 0% or above 40% to be extreme pessimism or optimism, respectively.
The table below compares the current data to typical data since 2005. The bulls are below their long-term average and the bears are above their long-term average. The bulls minus bears line is below its long-term average and near an extreme. The bulls - bears line went from -1.8% last week to 5.6% this week, which puts it in the 28th percentile of readings since 1972 (last week it was in the 18th percentile). Going back eight years and with the exception of summer 2022, three of the past four times the bull - bear percentage moved below zero and back above zero, it was a long-term buying opportunity.
Taking a closer look behind the possibility this bullish sentiment from the II survey could mean something good for the S&P 500, Schaeffer’s Senior Quantitative Analyst Rocky White went back to 1980. Specifically, White found any time the bulls minus bears turned positive after at least five weeks of being negative.
There have been 26 signals overall, though with these parameters, returns have been largely unimpressive. However, looking toward the individual signs as well as any signal from the 2008 financial crisis changed the outlook. Two signals during the financial crisis dramatically skewed the results. Both signals occurred during the financial crisis of 2008. Excluding those signals gives better returns.
When you get rid of those financial crisis signals, you get the tables below. The average returns outperform at each timeframe. The one-year returns are particularly impressive, with a 16% jump when excluding 2008, compared to with, which pulls a 10.4% 12-month return. Should the former return come to fruition, 12 months from now we could be seeing the S&P 500 benchmark trading near record levels of 6,862.
At the time of this writing, the SPX is looking to wrap the week up 5%, which would mark a fourth weekly win in six, an impressive pivot from its April lows near 4,800. Keep a close eye on more economic triggers in the coming months, as this week’s soft inflation data and renewed trade hopes are just the beginning of a busy summer season.