(By Greg Guenthner) A tidal wave of negativity continues to wash over investors.
But as the markets once again push lower today, you have a tremendous opportunity to turn to stocks. In fact, you're crazy if you're not planning a strategy to attack the stock market head-on.
Don't get me wrong — I'm not predicting that the market will shoot to new highs tomorrow. I'm not even certain that this summer correction has found a bottom. But what I do know is that attitudes on Wall Street and Main Street couldn't get any worse right now. And that's actually a good thing for stocks.
It's true — we're embroiled in an era of extreme pessimism. But a forward-thinking contrarian should be able to see the light at the end of this tunnel.
Here are three signs that pessimism is peaking this summer:
First, analysts are dreading the second quarter…
After expecting earnings growth in S&P 500 stocks as recently as last month, analysts are pumping the breaks and getting bearish. As of now, analysts are looking for a second-quarter earnings drop of about 1% for S&P members, according to Bespoke Investment Group.
Analysts want to avoid anything perceived to be a bad call. So they play to the headlines. As a group, their opinions are usually behind the curve. This reluctance to stand against the status quo is one of the reasons so many of Wall Street's opinions are so negative right now.
Consumers hate the stock market right now…
The negativity on Wall Street is quickly trickling down to consumers. Tuesday's consumer confidence report revealed a 10% jump in consumers who believe stock prices will decline in the near future. In only one month, the percentage of bears went from 32 to 42. That's a massive increase in just 30 days…
The "bear trade" is looking crowded because there is so much uncertainty and fear in the world right now. Simply put, investors are craving clarity. And whether news or resolutions are perceived to be "good" or "bad" we will probably see sentiment improve when some certainty is added to the mix.
If average investors aren't keen on stocks, they really hate the financial media…
Shunning stocks is in fashion. In fact, 24-hour financial "news" factory CNBC is even taking a hit. CNBCs ratings have plummeted to 7-year lows, according to a blog post at Market Montage. Signature shows like Squawk Box are receiving rating not seen since before the 2008 financial crisis, while Fast Money has posted its lowest rating for its key demographic since 1997…
You can see how these signs tell us that the pessimism is reaching its outer limits. That's a great contrarian indicator. Remember, true contrarianism doesn't instruct us to mindlessly latch on to an opposite position. Instead, it tells us to look for these extremes. The crowd is usually wrong at turning points. And it's possible that one of these important sentiment turning points isn't too far off…
Best,
Greg Guenthner
for The Penny Sleuth