Eleven Signals. One Pattern.

• Economic strength is accelerating even as sentiment collapses to record lows.

• AAII investor sentiment recently inflected after a long stretch of pessimism.

• Past cycles have led to above average S&P 500 returns.

Bull markets don’t die in fear; they die in euphoria…

We just received an encouraging snapshot of U.S. economic momentum, but you wouldn’t know it from the mood on Wall Street. According to the latest release from the U.S. Bureau of Economic Analysis, domestic output grew at a 2% annual rate in the first quarter. That marked a sharp acceleration from the 0.5% pace at the end of last year. In other words, the economy didn’t just sidestep the slowdown many expected; it quietly strengthened.

And the momentum may be building. The Federal Reserve Bank of Atlanta’s most recent GDPNow estimate suggests second quarter growth could climb toward 4 percent. That’s not the profile of an economy losing altitude. It’s the profile of one that continues to expand despite higher rates, geopolitical noise, and a steady drumbeat of recession calls that never quite materialize.

Yet sentiment hasn’t caught up. As shown in the University of Michigan’s Consumer Sentiment Index, Americans are behaving as if they’re waiting for the next shoe to drop. The gauge, which stretches back to 1952, just hit its lowest level on record, even as the economic backdrop improves. It’s a familiar pattern: the data turns long before the mood does.

And that gap between reality and perception is often where long term investors find their edge. When fundamentals are firming but sentiment is still anchored in worry, markets tend to offer opportunities that only look obvious in hindsight. One of the indicators we follow closely just flashed that kind of shift: the spread between bullish and bearish AAII sentiment turned positive after an extended bout of pessimism. That pattern has historically preceded above average returns for the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

Every so often, the market hands us a signal that’s easy to overlook in the week‑to‑week noise but meaningful when you zoom out. One of those signals just flashed again in late April. The AAII Bull‑Bear Spread, after spending nine consecutive weeks in negative territory, turned positive. For most investors, this might sound like a footnote. But historically, this pattern has been a reliable sentiment inflection point for forward equity returns.

To understand why, it helps to consider what the AAII survey captures. Each week, individual investors report whether they feel bullish, bearish, or neutral about the stock market over the next six months. On its own, the survey can be noisy. But when the spread stays negative for an extended period — meaning pessimists have outnumbered optimists for weeks on end — it often reflects a deeper emotional exhaustion in markets. Investors have already braced for bad news. And when that long stretch of negativity finally flips back to positive, it has historically marked the beginning of stronger equity performance.

This pattern has appeared 11 times going back to the start of 2000. That alone makes it notable: markets don’t hand out many clean, repeatable sentiment signals. Across those instances, the average negative streak lasted 17.1 weeks, or nearly one‑third of a year. The longest stretch ran 44 weeks from April 2022 through February 2023, while the shortest was the nine‑week run that ended in April 2026.

What makes these episodes compelling isn’t just the duration of the negativity, it’s what tends to happen next. Historically, when the Bull‑Bear Spread turns positive after nine or more consecutive negative weeks, the S&P 500 has delivered strong forward returns…

Twelve months after the signal, the index averaged an increase of 21.1%, with a median return of 21.6%. Even more striking: the success rate. In the ten instances where 12‑month data is available, seven produced positive returns. And in the nine cases where 24‑month data exist, six of them were positive, with an average gain of 31.7%.

These are not small numbers. They’re not statistical quirks. They’re the kind of outcomes that speak to the power of sentiment reversals and the power of staying invested when pessimism is widespread.

We’ve already seen this dynamic play out recently. The last time this signal triggered was May 21, 2025. At the time, investors were still digesting inflation volatility, geopolitical tension, and a soft patch in earnings revisions. Sentiment was deeply negative. But once the spread turned positive, the market began to climb. Twelve months later, the S&P 500 had gained 27.2%, outperforming even the historical average.

Now, a new signal was triggered in late April. It’s too early to measure forward returns, but the setup is familiar: extended pessimism giving way to early signs of optimism, even as headlines remain mixed and investors remain cautious. Historically, that combination has been fertile ground for long‑term gains.

Bottom line: when the AAII Bull‑Bear Spread turns positive after a long negative run, it has often marked the beginning of strong equity performance over the next one to two years. No signal is perfect, and history never guarantees the future. But the pattern is clear. Pessimism eventually exhausts itself, optimism returns, and markets tend to move higher. For long‑term investors focused on compounding, these are the moments that matter.

Five Stories Moving the Market:

Chip giant Nvidia reported record first-quarter sales and income, driven by surging demand for data-center computing and the astronomical rise of artificial-intelligence agents; sales for the April quarter reached $81.6 billion, up 85% from the year-earlier period and beating the $78.9 billion analyst estimate – WSJ. (Why you should care – CEO Jensen Huang framed compute capacity no longer as a speculative corporate expense, but as a direct driver of revenue and profit)

OpenAI is preparing to confidentially file for a U.S. initial public offering in the coming weeks, according to sources, adding to a wave of blockbuster ‌listings anticipated in the year ahead – Reuters. (Why you should care – the ChatGPT parent company is expected to seek a listing value of $1 trillion or more)

Anthropic’s revenue is set to more than double to $10.9 billion in the second quarter, an explosive rate of growth that will help it turn an operating profit for the first time; the company disclosed the figures to investors as part of an ongoing funding round that is likely to push its valuation above OpenAI’s – WSJ. (Why you should care – early-stage tech investors like Bill Gurley and Brad Gerstner have suggested the company could generate an ARR of $60 billion this year compared to $9 billion in 2025)

SpaceX filed publicly for its initial public offering, moving Elon Musk’s rocket, satellite and artificial intelligence company a step closer to delivering the world’s biggest-ever debut – Bloomberg. (Why you should care – the company is said to seek $75 billion in its listing at a valuation of more than $2 trillion)

The U.S. Federal Reserve proposed ​ adopting a new, more ‌limited form of a payment account that would allow firms ​like fintechs the ability ​to move money across the ⁠Fed's payment rails without ​enjoying all the backstops available ​to traditional banks; the Fed said the proposed accounts ​would not include access ​to intraday credit or the Fed's discount ‌window, ⁠nor would firms earn interest on reserves held at the Fed – Reuters. (Why you should care – our central bank is trying to grant payments-system access to more firms without adding risk to the broader financial system)

Economic Calendar:

Earnings: BJ, DE, NTES, RL, ROST, TTWO, WDAY, WMT

Japan – Exports, Imports for April

Japan – Au Jibun Bank Japan Manufacturing, Services, Composite PMI (Preliminary) for May

Eurozone – HCOB Eurozone Manufacturing, Services, Composite PMI (Preliminary) for May (4 a.m.)

U.K. – S&P Global U.K. Manufacturing, Services, Composite PMI (Preliminary) for May (4:30 a.m.)

European Union – Economic Forecasts (5 a.m.)

U.S. – Building Permits for April (8:30 a.m.)

U.S. - Initial Jobless Claims (8:30 a.m.)

U.S. - Continuing Claims (8:30 a.m.)

U.S. – Housing Starts for April (8:30 a.m.)

U.S. – Philadelphia Fed Manufacturing Index for May (8:30 a.m.)

U.S. – S&P Global U.S. Manufacturing, Services, Composite PMI (Preliminary) for May (9:45 a.m.)

Eurozone – Consumer Confidence for May (10 a.m.)

U.S. – KC Fed Manufacturing Index for May (11 a.m.)

Fed’s Barkin (Richmond, Non-Voter) Speaks (12:20 p.m.)

Treasury Auctions $19 Billion in 10-Year TIPS (1 p.m.)

Fed's Balance Sheet Update (4:30 p.m.)

ECB’s Lane (Chief Economist) Speaks (9:15 p.m.)