Legg Masons David Nelson believes the U.S. stock market bottomed on July 15, just before U.S. financial stocks blasted upward by 30% in a little over a week. We believe there is a reasonable argument to be made that July 15 marked an important low point . he wrote in his latest monthly commentary.
Nelson, who is chairman of the Investment Policy Committee for Legg Mason Capital Management, thinks the bottom is in place because sentiment has reached a degree of negativity that in the past signaled a turnaround in the stock market. Earlier this summer, more than half of the persons polled in a Conference Board survey revealed they thought stock prices would decline this year. The percentage has never been as high since the survey began in 1987.
Only six times . . . have 36% or more of respondents said they expected declines in the coming year, reported Nelson. In every case, the stock market confounded expectations by rising in the next year instead of falling . . . . The average gain of the six was +20.5%.