The Investment Pros Hit a Fear Extreme

Fear is driving the market today. But don't turn to the investment pros for help.

Normally, that's exactly what you'd want to do... look to the pros for guidance during a panic. It's human nature. If we don't understand something and need answers, we go to someone who has them.

That could lead you astray in the financial markets right now, though... if you're looking to hedge-fund and mutual-fund managers, at least.

It's not just mom-and-pop investors that are scared. These investment pros are also in fear mode. In fact, fund managers are the most bearish they've been since 2011.

If you follow their lead today, you could be making a big mistake. While it's not safe to buy just yet, their fear is another sign that big gains could be on the way over the next year.

Let me explain...

Humans constantly look for reassurance. And when someone up the chain of command agrees with your idea, you'll likely dig in deeper.

But as I mentioned, history says looking to the investment pros could be a big mistake today. To see this, we can look at the National Association of Active Investment Managers ("NAAIM").

The NAAIM Exposure Index is a weekly survey that helps us get a feel for what professional money managers are thinking. It's a great indicator of how bullish or bearish those folks are at any given moment.

Essentially, the survey asks what percent of their portfolios are in stocks. A zero indicates that they don't own any stocks. And a reading of 100 means they are fully invested.

Today, these fund managers have gone from almost completely invested to holding nearly no stocks at all. They're the most bearish on stocks that they've been in four years. Check it out...

These folks were heavily invested just a few weeks ago – and rightly so. Stocks were at all-time highs. But that story quickly changed...

As of the most recent results last Wednesday, fund managers' level of exposure to stocks is now at 11%. That's the lowest level since 2011 – and it's a powerful contrarian signal...

We've seen seven other cases where the investment pros have turned fearful since 2010. And each case ended up being a great buying opportunity.

Even more, most of the last seven cases led to roughly 20% gains or more over the next year. Check it out...

Fund managers are the most bearish they've been on U.S. stocks since 2011. And based on the table above, it looks like a great buying opportunity.

Now, the market is still in a downtrend. We never recommend trying to "catch a falling knife." Longtime readers know we want to see the trend turn back in our favor before buying.

Still, today's fear is setting up a major buying opportunity. We're not there just yet... But once the trend reverses, expect big returns in the stock market.

Good investing,

Chris Igou

Further Reading

The market's "fear gauge" recently hit levels unseen since the financial crisis of 2008. That seems bad – but history says it means a huge rally could be on the horizon... Read more here: Why Extreme Fear Could Be a Positive for U.S. Stocks.

A lot of investors will try to "catch a falling knife." Instead of doubling down on a falling stock, use this simple technique to bet on stocks as they begin an uptrend – and actually reduce your risk... Get the full story here: The Pros Strategy for Increasing Profits and Reducing Risk.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

Citrix Systems (CTXS)… cloud services

NEW LOWS OF NOTE LAST WEEK

Chipotle Mexican Grill (CMG)… tacos and burritos
PepsiCo (PEP)… snacks and soft drinks
eBay (EBAY)… online marketplace
Etsy (ETSY)… online marketplace
Mastercard (MA)… credit cards
JPMorgan Chase (JPM)… financial giant
MetLife (MET)… insurance
Pfizer (PFE)… pharmaceuticals
D.R. Horton (DHI)… homebuilder
Masco (MAS)… “fixer upper” stock
American Airlines (AAL)… airline
Spirit Airlines (SAVE)… airline