‘So bad, it’s good.’ This beleaguered stock market has one big asset on its side, say strategists.

“Indeed with markets, it’s not about good or bad — it’s all about better or worse relative to expectations. When expectations are low, a little bit of good news can go a long way. That’s why markets tend to bottom when fear and uncertainty are at an extreme,” said Lerner in a recent note to clients.

He downgraded his equity stance to neutral in April after two years of a positive stance, noting that while the range of potential outcomes is wide, risk/reward is less positive.

He pointed to the latest survey from the American Association of Individual Investors (AAII), which showed the percentage of investors with a negative/bearish outlook surging to 59.4%. That was the highest since early March 2009, just a few weeks short of a major stock bottom following the 2008-09 financial crisis decline.

“To be fair, investors were correctly negative in January 2008 in the early stages of that market downturn,” he said.

The percentage of bullish investors is currently 16%, also close to a record low, leaving the bull/bear spread at -43%, a level that has been surpassed twice in the past 35 years — in the fall of 1990 and that March 2009 period, said Lerner.

A similar theme was heard from Thomas Lee, founder of Fundstrat Global Advisors, who told clients that the AAII sentiment survey was a “major bottom signal,” based on history. “So bad, it’s good,” he said.

Lee provided this chart showing when such a weak reading marked a stock bottom:

One footnote from Lee is that the AAII survey tends to sample older investors, and not the Reddit crowd.

Read: Boomers are leaving the stock market. Here’s what happens next.

Lerner adds other proof of investor negativity, such as the $45 billion flowing out of equity funds over the past two weeks. “This is an extreme that we have also seen during times of heightened uncertainty and volatility,” Lerner said.

For example: the post-Lehman Brothers bankruptcy, the U.S. debt downgrade, COVID-19 pandemic lows and two months before the 2020 U.S. presidential election. While the Lehman Brothers signal was “premature,” strong price returns followed the other periods, he said.

In short, Lerner said Truist follows the “weight-of-the-evidence approach,” which is telling it that depressed investor views and a “low hurdle for positive surprises” are the stock market’s biggest assets going.

The buzz

Amazon
AMZN,
+4.65%
is down 8% in premarket after its first loss in seven years. Apple
AAPL,
+4.52%
is down over 2% after the tech giant topped earnings and set a revenue record, but warned of billions in added costs from supply-chain woes.

Tesla
TSLA,
-0.45%
stock is higher after CEO Elon Musk tweeted that there were no more sales planned for now, after he sold nearly $4 billion worth.

Earnings are rolling out from Chevron
CVX,
+3.55%,
Exxon
XOM,
+3.02%,
Honeywell
HON,
+1.92%,
AbbVie
ABBV,
-0.83%,
Bristol-Myers Squibb
BMY,
+1.83%
and Colgate-Palmolive
CL,
+0.66%.

Opinion: Big Tech is no longer winning as big, but these two stocks still seem safe

Elsewhere, Intel
INTC,
+3.58%
is down after results, while investors are cheering Roku
ROKU,
+8.11%
earnings. Also sinking are shares of Robinhood
HOOD,
+6.10%,
which missed forecasts and said fewer people were trading on its app.

And Digital World Acquisition Corp.
DWAC,
+7.88%,
the special-purpose acquisition company buying the company behind former President Donald Trump’s Truth Social, is surging after Trump resurfaced with a message on the platform.

The Federal Reserve’s favored inflation gauge — the core personal consumer expenditure price index — is ahead, followed by the University of Michigan consumer sentiment index.

The Labor Department is worried Fidelity’s plan to allow Bitcoin into 401(k) plans is risky for retirees.

China’s government has vowed more support for its economy, as the country battles COVID-19 outbreaks.

The markets

Stock futures
YM00,
-0.41%

ES00,
-0.86%

NQ00,
-1.12%
are lower, with bond yields
TMUBMUSD10Y,
2.861%

TMUBMUSD02Y,
2.678%
flat and crude-oil prices
CL00,
+1.03%
modestly higher. Gold is getting a pop, while the dollar
DXY,
-0.70%
has cooled after Thursday’s massive rally, notably against the yen
USDJPY,
-0.70%,
which continues to drop. Bitcoin
BTCUSD,
-3.11%
and other cryptos are modestly up.

The chart

Naomi Poole and a team of strategists at Morgan Stanley have rolled out a new Market Sentiment Indicator (MSI) to offer “tactical guidance on ‘risky assets.’” It aggregates survey, positioning, volatility and momentum data to gauge market stress and sentiment.

The MSCI All-Country World Index (you can track that via the exchange-traded fund iShares MSCI ACWI
ACWI,
+2.09%
) is used as a proxy for risk asset performance.

“Our analysis suggests that improving/deteriorating sentiment is a more powerful signal for forward returns than just extreme levels,” said Poole and the team. Using the level and direction of stress, the MSI is currently neutral and not giving off buy signals yet, they said.

The tickers

These were the top-traded tickers on MarketWatch as of 6 a.m. Eastern Time:

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