Why rising bearish sentiment isn’t crushing this stock market—yet

As Wall Street celebrates the eighth anniversary of the cyclical bull market on Thursday, two things stand out: a knock in oil prices amid a supply glut and high levels of pessimism that appear at odds with near-record levels of stock-market indexes.

Pessimism among individual investors surveyed last week, however, has risen to the highest level since February 2016, when the S&P 500 was in the throes of a correction—defined by a drop of at least 10% from a recent peak. The sentiment shift has been gradual, as investors have grown slightly more bearish over the past few months.

Bearish sentiment, when investors expect stock prices to fall over the next six months, has been above the historical average for the seventh time in eight weeks.

There are a few possible explanations for this change in mood: investors are concerned about valuations, which are stretched; there are doubts about Trump administration’s fiscal stimulus, as there are no discernible details about any of them, or the Fed is signaling a faster pace of rate hikes, which historically has been a negative for assets perceived as risky. Higher borrowing costs can be a headwind to corporate earnings and stocks.

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