The S&P 500 Index has been hitting record highs for the past nine months, with over 60% of market newsletters bullish for the first time since 2024, according to Investors Intelligence. However, historical data shows that when bullish sentiment is this high, the stock market tends to underperform over the next six months, with only 59% of returns positive compared to the usual 69%. This extreme bullishness could signal a potential pullback in the market.

Looking at instances when bullish sentiment was high and the S&P 500 was near an all-time high, data shows negative returns over the next one and three months, with only a 1.84% and 2.06% return over six and twelve months. This suggests caution going forward, as extreme bullishness often precedes market pullbacks.

Analyzing SPX returns based on bull sentiment percentages from the II survey since 1965, the data indicates that stock returns are lowest when bullish sentiment is high, and highest when it is low. This reliable contrarian indicator suggests that a high percentage of bulls could lead to lower stock returns in the future.

Read more at Yahoo Finance: Sentiment Signal Suggests Increase Chance of a Pullback