Legg Mason’s 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%.”