Why Current Bearish Analyst Sentiment May Be a Contrary Indicator

Why Current Bearish Analyst Sentiment May Be a Contrary Indicator

We always love a good contrary indicator!  And here’s a great one from Barry Ritholtz on his always-excellent blog entitled Are Wall Street Analysts Contrary Indicators?

As we have noted so many times previously, following the Wall Street crowd of analysts is rarely the way to make money.

Collectively, the analyst community has turned excessively bearish, versus their typical excessively bullish outlooks.

Why so many bearish stock calls from equity analysts? Fear of a double dip. Slowing growth. Concern that joblessness will weaken consumer spending. Uncertainty. Negativity on the economy. Credit issues. Lack of economic catalyst.

In other words, all of the general economic concerns trumpeted in the media each day — that these analysts have precisely zero expertise in identifying, anticipating and responding to. In fact, most stock analysts would have a hard time dissecting BLS employment data or understanding how GDP is calculated. Its outside of their roundhouse.

Barry concludes:

Ultimately, excess pessimism amongst the analyst crowd may be a bullish contrary signal. It should make dedicated bears nervous .

Definitely food for our dedicatedly bearish thought!  You can read Barry’s full piece (with graph depicting analysis biases) here.