U.S. Stock Pessimism Drops to Lowest Since 2007, Survey Finds

(Bloomberg) -- Pessimism about U.S. stocks fell to the lowest level since the Standard & Poor’s 500 Index peaked in October 2007, as economic reports and policy makers indicate the recession in the world’s largest economy is easing.

The proportion of bearish newsletter writers dropped to 19.8 percent in the week ended yesterday from 23.1 percent in the period that ended Aug. 18, a survey by Investors Intelligence showed today. Bullish stock advisors climbed to 51.6 percent from 48.3 percent, reaching the highest reading since December 2007, the New Rochelle, New York-based firm said.

Investor confidence improved after the S&P 500 surged 52 percent since March 9, the steepest rally since the Great Depression. Pessimism fell after peaking at an almost 14-year high of 54.4 percent in October as reports showed the recession is easing. Treasury Secretary Timothy Geithner said last week that the economy is “starting to see signs of stability.”

“There’s no doubt that the economic data that comes out is getting more and more positive,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.5 billion in Elmira, New York. “As that evidence grows stronger and stronger, people are going to feel better about investing in the stock market.”

Purchases of new homes in the U.S. jumped more than forecast in July, adding to signs that the economy is rebounding from the worst recession since the 1930s. Sales increased 9.6 percent, the most since February 2005, to a 433,000 annual pace, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in 16 years.

Newsletter writers predicting a correction, or a 10 percent drop in benchmark indexes, were unchanged at 28.6 percent, according to the Investors Intelligence survey.

Some technical analysts, who try to predict stock moves based on price and trading patterns, track sentiment as a contrarian indicator. They interpret an increase in optimism as a sign that equities may retreat.