S&P 500 Roams All-Time Highs But Bearish Sentiment Is Roaring In The Market...Is It Time To Panic?

The panic among stock market investors is intensifying, even as the S&P 500 continues to hover near its all-time highs.

According to a report released by Bespoke Investment Group on Thursday, "What happened to sentiment? Everywhere you look, fear has set into the collective mood." The firm cited multiple indicators reflecting a rise in market panic, showing a clear deterioration in investor confidence.

This sentiment has spread across various levels, including economic uncertainty indicators. The Economic Policy Uncertainty Index, developed by economists Scott Baker, Nick Bloom, and Steven J. Davis, has surpassed levels seen during the worst of the COVID-19 pandemic.

Earlier data from the University of Michigan's Consumer Sentiment Index revealed that the index fell to its lowest level since November 2023, further exacerbating market concerns. On Tuesday, the Consumer Confidence Index released by the Conference Board also dropped sharply by 7 points to 98.3, its lowest level in eight months, adding to investor unease.

Bespoke analysts noted that while economic and consumer data have worsened, the most evident panic is still reflected in the stock market.

Among widely followed market sentiment indicators, CNN's Fear & Greed Index dropped to 21 early Thursday, indicating a state of "extreme fear." This index aggregates factors such as market momentum, market breadth, options trading activity, high-yield bond markets, and demand for safe-haven assets.

Additionally, the weekly Investor Sentiment Survey by the American Association of Individual Investors (AAII) showed a significant rise in bearish sentiment. The report stated, "The bears are out in full force." Data revealed that bullish sentiment plummeted from 29.2% last week to 19.4%, hitting its lowest level since March 2023.

More notably, bearish sentiment surged even more dramatically. AAII data showed that bearish sentiment jumped from 40.5% last week to over 60%, marking the largest weekly increase since August 2019.

Investors generally believe that extreme panic often occurs near market bottoms. However, what makes this wave of market panic unique is that despite the sharp rise in fear, the S&P 500, as of Wednesday's close, was only down 3.1% from its all-time high set on February 19.

Bespoke analysts wrote, "It takes a lot less to strike fear into investors than it has in the past. If there is one word to describe the state of investor sentiment right now, complacent it is not."

Although market data remains relatively robust, the rapid collapse of investor confidence could further exacerbate market volatility. In the current macroeconomic environment, the future direction of the market will depend on whether investor sentiment stabilizes and whether subsequent economic data can provide new support.