By Bryan Perry
March 25, 2025
The level of uncertainty for both the domestic economy and global economy is about as high as I can recall. The April 2nd tariff deadline looms, along with what that means to potential inflation, while the DOGE job cuts have met with the expected resistance, and proposed ceasefires between Ukraine and Russia, or between Israel and Gaza, are met with either mistrust, broken promises or more attacks. The Fed remains uncommitted to targeted rate cuts, while weak soft data fails to corroborate the healthier hard data and earnings forecasts are more guarded, with the dirty word “stagflation” being thrown around.
Heading into the end of the quarter next Monday, the analyst community still sounds very upbeat on U.S. companies’ sales and earnings prospects, despite the financial media embracing the recession narrative.
According to the latest research by FactSet, there are 12,320 ratings on S&P 500 stocks. Of these ratings, 55.7% are Buys, 38.7% are Holds, and only 5.6% are Sells. For comparison purposes, the five-year month-end average of Buy ratings is 55.0%. The average percentage of Hold ratings is 39.1% and the average percentage of Sell ratings is 5.9%, so all are fairly close to the current rating percentages.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The trend of Buys is up: After falling to 53.6% at the end of October 2024, the percentage of Buy ratings for the S&P 500 has increased over the past five months to 55.7% today. If 55.7% is the final percentage of Buy ratings for the month of March, it will mark the highest (month-end) percentage of Buy ratings for the index since August 2022 (55.8%) – not quite the stuff of a pending recession. By sector, the highest percentage of buy ratings are in the energy, information technology and communications services sectors.
As I have mentioned before, the amount of goods at risk of being tariff-impacts only about 11% of total U.S. GDP and that is probably why the analyst community isn’t as bearish on U.S. business prospects as some of the talking heads at the media outlets would have us believe. If you look at a list of the top 10 stocks with the highest percentage of Buy ratings, three of the stocks are travel and leisure companies.
Investor Sentiment Just Set a Record Low
The American Association of Individual Investors (AAII) conducts a weekly seminar of its members, asking if they are bullish, bearish or neutral on the stock market over the next six months. The latest AAII survey is decidedly negative, but it experienced a slight uptick in the latest week. Bearish sentiment is unusually high and is above its historical average of 31% for the 16th time in 18 weeks. This is the first time in the history of the AAII survey that bearish sentiment exceeded 57% for four consecutive weeks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The AAII survey is noted for its role as a contrarian indicator – a signal to buy (when sentiment is ultra-bearish) or to sell (when their sentiment is super-bullish). When bullish sentiment is above 45%, the market is historically overbought. When the bearish sentiment is above 45% the market is historically oversold. For bearish sentiment to be above 57% for four straight weeks is starkly negative and telegraphs the same level of fear seen in the CBOE Volatility Index (VIX) that peaked at 29.56 on March 11 and now stands at a still-elevated 19.26. If past is prologue, the AAII survey is flashing a strong buy signal.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The mood among monetary policymakers at the Fed is the same, one of caution, with most voting members adopting a wait-and-see stance toward tariffs and trade policy, which has fostered what Fed Chair Jerome Powell called “unusually elevated” uncertainty. When the Fed is unsure of the situation, markets trade lower, yet last week there were signs of bargain hunting emerging in beaten down sectors.
It is clear that this correction is the product of not just uncertainty and a decline in investor confidence but also the deleveraging by institutional and retail investors that came into 2025 locked and loaded for big market gains. This great unwind of leverage and related margin calls now seems to have run its course.
Last week, both Citigroup and Morgan Stanley reiterated their year-end targets for the S&P to hit 6,500, representing 15% upside from where the index currently trades. This would imply that the AI trade is still very much alive and well since the Magnificent 7 represents 35% of the S&P 500’s total weighting. As of this writing, only one of the Mag-7 is trading above its 200-day moving average, and only barely so.
There has been broad technical damage exacted among the majority of stocks within the S&P 500 with a lot of wood to chop for the market to reach 6,500 in just nine months until year-end. While I’m not holding my breath for 6,500, there is a sense that some leading stocks have appropriately recalibrated their valuations to reflect the thick fog bank the market was in. But while every fog bank greatly reduces our visibility, fogs are often localized, covering small areas, like patches along a great highway.
For now, investors should keep their fog lights on and drive with a sense of cautious optimism.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The “Dot Plot Thickens” at the Latest FOMC Meeting
Income Mail by Bryan Perry
There is a Major Disconnect Between Current Perception and Reality
Growth Mail by Gary Alexander
Is This a Mini-Correction or the Start of a Lost Decade?
Global Mail by Ivan Martchev
Some Bottoming Action in the Stock Market is Clearly Evident
Sector Spotlight by Jason Bodner
Some Good News and Bad News About This Correction
View Full Archive
Read Past Issues Here
Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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