Entering a state of "extreme fear"! Short sellers have fully emerged in the U.S. stock market

Investor panic in the stock market is intensifying, even as the S&P 500 index remains near historical highs.

According to a report from Bespoke Investment Group on Thursday, analysts noted, "What has changed in market sentiment? Panic has permeated the collective psychology of investors from every angle." The firm listed several indicators reflecting the rise in market panic, showing a significant deterioration in investor confidence.

This sentiment has spread across various levels, including economic uncertainty indicators. The Economic Policy Uncertainty Index developed by economists Scott Baker, Nick Bloom, and Steven J. Davis has surpassed levels seen during the peak of the COVID-19 pandemic.

Previously released data from the University of Michigan's Consumer Confidence Index showed that the consumer confidence index fell to its lowest level since November 2023 in February, further exacerbating market concerns. Additionally, on Tuesday, the Conference Board's Consumer Confidence Index also dropped significantly by 7 points to 98.3, marking an 8-month low, which has similarly unsettled investors.

Bespoke analysts pointed out that despite the deterioration in economic and consumer data, the most pronounced panic is still reflected in the stock market.

Among several widely watched market sentiment indicators, CNN's Fear & Greed Index fell to 21 on Thursday morning, indicating that the market has entered a state of "extreme fear." This index aggregates various factors, including market momentum, market breadth, options trading, high-yield bond market conditions, and demand for safe-haven assets.

Furthermore, the American Association of Individual Investors (AAII) weekly investor sentiment survey also showed a significant rise in bearish sentiment. The report stated, "The market's 'bears' have emerged in full force." Data indicated that bullish sentiment plummeted from 29.2% last week to 19.4%, marking a new low since March 2023.

However, what is even more concerning is the significant surge in bearish sentiment. AAII data showed that the proportion of bearish sentiment skyrocketed from 40.5% last week to over 60%, marking the largest single-week increase since August 2019. In the entire historical data of this survey, only six trading weeks have seen higher bearish sentiment, all of which were accompanied by major historical events, such as:

The 1990 recession; Iraq's invasion of Kuwait (1990); the global financial crisis of 2007-09; September 2022 (when the market was at a bear market low).

Investors generally believe that extreme panic sentiment often occurs near market bottoms. As Warren Buffett said, "Be fearful when others are greedy, and be greedy when others are fearful." However, the peculiarity of this round of market panic is that, despite the sharp rise in panic sentiment, as of Wednesday's close, the S&P 500 index is only down 3.1% from its all-time high set on February 19.

Bespoke analysts wrote: "Today, investors are more prone to panic than ever before. If one word were to describe the current market sentiment, it would certainly not be 'complacency.'"

Although market data remains relatively robust, the rapid collapse of investor confidence could further exacerbate market volatility. In the current macro environment, the future direction of the market will depend on whether investor sentiment can stabilize and whether subsequent economic data can provide new support for the market