Ed Yardeni on soft investor sentiment: ’It’s always darkest before the dawn’

Investing.com -- Despite a wave of dire headlines and investor pessimism, Yardeni Research said in a note Monday that it sees a potential opportunity forming amid the gloom.

In a new note, the firm pointed to an unusual burst of negativity in major financial media. “We don’t recall this ever happening before,” the analysts wrote, citing three consecutive weeks of bearish cover stories from The Economist on the U.S. dollar, stock and bond markets, and the global economy.

Yardeni believes the prevailing fear may have gone too far. “As extreme bearishness pervades world markets, the old maxim ‘It’s always darkest before the dawn’ comes to mind,” the firm wrote. “Markets are always at peak bearishness before the bull.”

Recent data shows widespread skepticism. Yardeni highlighted collapsing bull-bear ratios and noted that “44.5% of respondents expected stocks to continue cratering,” based on consumer sentiment surveys. 

Particularly among younger investors, optimism has reportedly faded—only 31.8% of those under 40 are said to expect stock prices to rise over the next year.

Still, Yardeni sees contrarian signals beginning to flash. “The sheer scale of this year’s bull market in terms of angst could be a bubble all its own,” the analysts wrote. 

While acknowledging real risks they noted, “There are no clear signs” of a financial crisis on par with 2008.

Yardeni also pointed to potential de-escalation in U.S.-China trade tensions as a reason for cautious optimism. They noted that “China is ready to talk trade—with preconditions,” adding that even a modest reduction in tariffs could “relieve” market pressure.

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“Again, it’s easy to gravitate toward despair,” Yardeni wrote. “But if our suspicions are right, and some hints of dawn reappear sooner rather than later, then writing off 2025 as an unmitigated disaster for stocks might be a costly mistake.”

 

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