Newsletter Editors Becoming Less Optimistic--Is That Bad or Good?

Here’s something for contrarians to feel good about: Optimism about U.S. stocks has declined to a four-month low, according to a weekly poll by Investors Intelligence newsletter.

The percentage of investment newsletter editors who considered themselves bullish, or optimistic, about U.S. stocks fell to 52.6% in the week ended Friday from 55.8% the previous week. That confidence reading has declined from more than 60% in the last week of May, when it reached a 12-year high, and it hasn’t been so low since the week of March 12.

The percentage who considered themselves bearish, or very pessimistic, rose to 27.2% from 25.7%.

And the percentage of newsletter editors expecting a “correction” in stocks--a drop of about 10% in the next 12 months--rose to 20.2% from 18.5% the previous week.

The overall drop in optimism, ironically, may boost the spirits of some investors. Technical analysts--those who try to predict moves in the market based on past trends--say declining optimism indicates that investors who view the market less favorably could be building up cash that can be used to fuel the next rally when sentiment changes again.

Major stock indexes all set new highs last week, in a powerful rally that saw the Dow Jones industrial average surge 5.6%.