The stock market likes to climb a wall of worry — but now that’s crumbling

The U.S. stock market’s rally is most likely a counter-trend advance within a longer-term downtrend. That’s the conclusion I reached after analyzing how quickly many on Wall Street have turned bullish in recent days. The hallmark of a more sustainable advance is one that initially is met with widespread skepticism, but that hasn’t been the case now.

Consider how stock market timers normally react to a six-session rally; that’s how many trading sessions there have been since the market’s Oct. 3 low; since then the S&P 500
has gained 3.5% (through Oct. 11) while the Nasdaq Composite
is 4.6% higher. By analyzing all other six-day rallies of similar magnitude over the last two decades, we can project how they “should” have reacted this time around.

In fact, the average market timer has turned far more bullish than this two-decade analysis would lead us to expect. Consider first the average exposure level of stock market timers who focus on the broad stock market. (This average is represented by the Hulbert Stock Newsletter Sentiment Index, or HSNSI.)

This average has jumped an astonishing 35.6 percentage points since Oct. 3, almost four times the 9.8 percentage point HSNSI increase that two decades of market history would lead us to expect from a 3.5% S&P 500 rally.

A similar story is told by the other equity sentiment index that my firm constructs, which focuses on equity exposure levels among Nasdaq-focused stock market timers in particular. (The average of these exposure levels is represented by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI.)

This average has soared 34.1 percentage points since Oct. 3 — nearly double the 17.4 percentage point increase that history would suggest in the wake of the Nasdaq Composite gaining 4.6%.

To put the market timers’ giddiness in context, consider how they reacted in the first six trading days of the bull market that began a year ago, on Oct. 12, 2022. The Nasdaq Composite rose 6.1% over that six-day period, versus its 4.6% increase over the more recent six trading sessions, but the HNNSI a year ago rose far less — 13.3 percentage points, in contrast to 34.1 percentage points since this Oct. 3.

This is a big reason why contrarian investors aren’t expecting much from the current rally.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

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