Is it safe when everyone is shouting for a fall? The US stock market sentiment index suddenly plummeted, but the bulls see hope.

The US stock market has been oscillating near historical highs for nearly four months, with almost every rally quickly being devoured by a wave of selling, as seen in Monday's market. This endless back and forth has led to a well-watched investor sentiment survey showing that the number of bears has exceeded the number of bulls for the first time since November last year. Parag Thatte, a strategist at Deutsche Bank, stated that the bank's monitored subjective stock position indicator has now dropped to the underweight range. For bullish US stock investors, these two bearish signals combined actually serve as an entry signal. Historically, this often indicates that buying interest in stocks is about to rise. It also suggests that the current rebound is spreading - investors are continuing to shift from large tech stocks to higher-risk small-cap stocks and emerging markets. Ed Clissold, Chief US Strategist at Ned Davis Research, stated that the current US stock market is showing a rare combination of "bearish sentiment and widespread upward momentum". He told clients on Monday that this situation is "overall leaning positive for US stocks", which is why they are maintaining an overweight position in US stocks. The S&P 500 index has fallen 0.8% from its historical high set on October 28 last year, and since then, the "Big Seven" faced a continuous pullback in November. The index last closed at a record high four weeks ago and has since fallen 2% from that level. In contrast, the Russell 2000 small-cap index and the S&P 500 equal-weight index have both risen by at least 5.2% year-to-date. Funds are flowing from mega-cap tech stocks to smaller, riskier stocks, as well as the energy, raw materials, and essential consumer goods sectors. However, Andrew Greenebaum, Senior Vice President at Jefferies, wrote in a report, "market sentiment and risk exposure have deteriorated rapidly." "We're not seeing extreme signals of 'holding our noses and buying' - and the major indices haven't even entered a pullback range yet. It's hard to say if this situation will arise." In addition to the classic contrarian signal of bearish sentiment, bulls have more solid reasons for optimism. The key factor is corporate earnings: compiled data shows that earnings of S&P 500 components in the fourth quarter grew by 13% year-on-year, far exceeding the market's previous expectation of less than 9%. Although the results of the American Association of Individual Investors (AAII) survey clearly lean towards pessimism, the market generally believes that, like consumer confidence and other sentiment surveys, respondents often say one thing but do another. Matt Miskin, Co-Chief Investment Strategist at Manulife John Hancock Investments, stated, "They may say 'they're not that optimistic,' but their actions are honest - they are adding to risky assets." He pointed out that investors are flocking into high-risk stocks and increasing their bullish bets through single-stock leveraged ETFs and other tools. Retail investors have been consistently "buying on dips" and have achieved impressive results. Greenebaum also mentioned several positive signals in this earnings season: about half of the S&P 500 companies have raised their performance guidance, the highest proportion since the second quarter of 2021. "These companies are not having operational issues, their earnings are still growing, it's just that the market is temporarily unwilling to price them. I believe this situation will change in the mid-term. If US stocks cannot gradually rise, I would be very surprised." He specifically mentioned that the Ned Davis Research sentiment indicator fell into a pessimistic range on February 11; even as funds continue to shift from large-cap tech stocks to value, mid-cap stocks, over 62% of S&P 500 components are still above their 200-day moving average; and the S&P 500 breadth indicator is at a historical high. "These signals are more like characteristics of a mature bull market rather than the starting point of a new upswing, but they are definitely not signs of an imminent collapse." Of course, investors still face multiple uncertainties: after the US Supreme Court rejected Trump's tariff policies, related measures were urgently revised last Friday afternoon, adding to policy uncertainty; concerns about the impact of AI tools on revenue for many industries also continue to weigh on the stock market. Dirk Willer, Head of Macro Strategy and Asset Allocation at Citi, recently pointed out that the S&P 500 is currently oscillating in a "chaotic range," and their sentiment indicator suggests that "tactical caution is needed." Despite this, Citi reiterated their overweight position in US stocks, reduced their position in tech stocks, and shifted 50% of their holdings to small-cap stocks. "Our equity strategy team believes that there is still room for market rotation and broadening."