MW The last holdout bears are Democrats, say strategists. Their capitulation could fuel the next leg higher for stocks.

By Barbara Kollmeyer

Ned Davis strategists say politics are keeping certain investors pessimistic.

The S&P 500, basking in the glow of record recovery from April's lows, could be ready to establish a new landmark on Wednesday as a holiday-shortened week winds down.

During the last 60 years, a more than 20% gain for the S&P 500 SPX in a two-month time period has happened only six other times, Pat Tschosik chief thematic strategist and London Stockton, analyst at Ned Davis Research, told clients in a new note.

Despite this impressive performance, the pair sense a lack of investor wow-factor out there, likely due to some remaining pessimists. In our call of the day, Tschosik and Stockton say those bearish holdouts - they point the finger at investors who are Democrats - could open the door to another rally when they finally capitulate.

Backing up a bit, the Ned Davis team went digging around to figure out what was going on with investor sentiment, looking at several surveys and gauges. They started with their own daily trading sentiment composite, which is a 0-to-100 measure combining different sentiment, asset flow, valuation and other readings. Dating back to 1975, the gauge moved above 70 during similar 20% jumps in two months for the S&P 500, except during the pandemic.

That gauge, however, rose to just 62.2 after the S&P 500's recent 20.5% move. Tschosik and Stockton said that shows "we started from a very low level of pessimism and that a meaningful amount of pessimism remains." They added that this sentiment gauge hasn't been in the zone of excessive optimism for more than two days since Dec. 10.

In addition, their crowd sentiment poll has been in neutral territory for the past couple of months, and is below its 10-year average.

The pair then looked at a sampling of other surveys such as the Commodity Futures Trading Commission's survey of commercial futures traders, investment newsletter editors and individual traders. They compared current readings on those surveys to their 10-year averages.

Standing out was the American Association of Individual Investors survey that showed just 24.7% bulls as of mid-March, said Tschosik and Stockton. While the number of bullish investors rebounded by May, they conclude that this group of investors is more bearish than other surveys they tracked, with a calculated bull reading of 46.8%.

"The good news for bulls is that it leaves room for the market to go higher as these bears are converted into bulls. The S&P 500 has returned 10.8% annually when bulls are below 59.5%," they said.

That brings us to the pair's sleuthing over the source of those bear holdouts. Tschosik and Stockton looked at consumer sentiment by political party, which showed a sharp plunge for Democrats. "The current sentiment reading for Democrats is not only its lowest level since 2017, it is the lowest level relative to Republicans," they said.

Whether too-negative Dems or too-positive Republicans are in the right when it comes to markets remains to be seen, they say, given the second half of the year offers reasons to be cautious.

But add those low levels of sentiment to other indicators they are watching such as breadth thrusts - a bullish technical signal for stocks - the pair believe "Democrat investor capitulation could fuel the next up-leg of the market."

Incidentally, a new Gallup Poll - conducted before the recent record highs - showed that 60% of investors are worried about stock-market volatility. Party identification plays out here as well, with 48% of Democrats surveyed "very concerned" about recent market ups and downs, versus just 9% of Republican investors.

Read: S&P 500 just saw its first 'golden cross' in more than 2 years. Here's what comes next.

The markets

U.S. stock futures (YM00) (ES00) (NQ00) appear set to shake off Tuesday's lackluster session, though Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are creeping higher. The dollar DXY is firming up.

   Key asset performance                                                Last       5d     1m      YTD 
   S&P 500                                                              6198.01    1.74%  3.81%   5.38% 
   Nasdaq Composite                                                     20,202.89  1.46%  4.14%   4.62% 
   10-year Treasury                                                     4.25       -4.20  -10.90  -32.60 
   Gold                                                                 3350       0.34%  -0.80%  26.93% 
   Oil                                                                  65.48      0.72%  3.38%   -8.89% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Ahead of Thursday's jobs data that could decide a Fed rate cut next month, private-sector payrolls are due at 8:15 a.m.

Shares of Constellation Brands $(STZ)$ are dropping after the beer and wine producer predicted upbeat profits, but said beer demand was hit by "socioeconomic headwinds."

Centene $(CNC)$ is sinking after the healthcare enterprise company pulled earnings guidance.

Netflix $(NFLX)$ reportedly plans to expand its offerings beyond series and movies to include to reality TV, comedy and live programming.

Apple $(AAPL)$ got a Jefferies upgrade, but the analyst says Wall Street isn't serious enough about tariff threats to the iPhone maker.

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The chart

Among niggling worries about stocks is this chart from RBC Capital Markets, which shows the rate of upward earnings per share estimate revisions for the S&P 500 are back to post-COVID/non-crisis rebound highs. That's making a team led by Lori Calvasina, head of U.S. equity strategy, "wonder if this is as good as it gets for 2025 earnings." Other worries for stocks include stalled bitcoin prices, as they've moved in sync with the S&P 500, she said in a note.

Top tickers

These were the most active stock tickers on MarketWatch as of 6 a.m.:

   TSLA  Tesla 
   NVDA  Nvidia 
   GME   GameStop 
   PLTR  Palantir Technologies 
   AAPL  Apple 
   AMD   Advanced Micro Devices 
   TSM   Taiwan Semiconductor Manufacturing 
   AMZN  Amazon 
   NIO   NIO 
   WOLF  Wolfspeed 
   COIN  Coinbase Global 

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-Barbara Kollmeyer

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July 02, 2025 06:56 ET (10:56 GMT)

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