Investor sentiment is worse than it was at the depths of the Great Financial Crisis in 2008 - but that suggests a stock market bottom is near, Fundstrat says

• Investor sentiment is worse than it was at the depths of the 2008 Great Financial Crisis, according to Fundstrat.
• But stock market conditions today are not as bad as they were in 2008, suggesting a bottom is near.
• "The key to 2023 will be to focus on ... how things can change rather than ... what has been realized," Fundstrat said.

Investor sentiment has fallen to levels worse than the Great Financial Crisis in 2008, and that suggests a stock market bottom is near if it hasn't already happened, according to Fundstrat.

Based on a rolling 51-week average of bearish sentiment measured by the AAII Investor Sentiment Survey, sentiment is at its lowest level on record since the survey began in 1987, Fundstrat's Ken Xuan said in a Thursday note.

"We are currently at the most 'entrenched' and persistent level of bearish sentiment in the survey's history. Think about that. More negative than [the] 2002 tech bubble and 2008 Great Financial Crisis," he said.

Similarly, CNN's Fear and Greed Index shows that investors are currently in "Fear" mode, though it's not sitting at record lows.

Investors have good reason to be fearful, given that the S&P 500 is on track to end the year down 20% after a series of shocks pummeled the market. Those include high inflation, fast-rising interest rates, and growing concerns of a recession — either in the economy, corporate earnings, or both.

"But are conditions really worse than 2008?" Xuan asked. "We think no. Why? Because investors are more focused on the shocks that are now 'realized' (in the past) and less on how things can change. We think the key to 2023 will be to focus on the latter (how things can change) rather than the former (what has been realized)."

All-in, the overly bearish investor sentiment, combined with inflation showing signs of falling "like a rock," means the stock market is near a bottom if it hasn't already been realized.

And that sets the stock market up for a big rally in 2023, which Fundstrat's Tom Lee believes can eclipse more than 20% to his 2023 S&P 500 target of 4,750.

"Periods of such depressed sentiment have corresponded with secular lows in stocks," Xuan said.