How Predictions Of An Impending Market Crash Might Actually Be Evidence It Isn't Coming Yet

It’s been quite some time since market fears concerning an imminent U.S. recession have been so strong. Ever since China slowdown fears sparked market concerns in August of last year, traders have been extremely jittery. Yet, despite weakness in China and Europe and a surprise Brexit vote last month, the SPDR S&P 500 ETF Trust SPY is up 0.6 percent in the past year.

The irony when it comes to predicting a recession and a stock market crash is that low expectations for the market are typically a reliable contrarian indicator that the market could soon be on the rise.

Oppenheimer analyst Ari Wald noted this week that all the recent dips in the stock market have been met with a spike in the number of news stories that include the phrase “stock market crash.”

“For comparison purposes, there were significantly fewer occurrences of this through the topping process in 2007,” Wald noted. He added that market tops are typically marked by extreme investor optimism, which is far from the current state of market sentiment.

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Bank of America analyst Savita Subramanian agrees.

“While sentiment has improved significantly off of the 2012 bottom—when this indicator reached an all-time low of 43.9—today’s sentiment levels are still well below where they were at the market lows of March 2009,” Subramanian explained.

Incredibly, Bank of America’s Sell Side Indicator, which is a measure of Wall Street sentiment, is predicting a 21 percent gain for the S&P 500 in the next year.

Disclosure: The author holds no position in the stocks mentioned.