Traders are increasing their bets on falling stocks as the S&P 500 approaches a new bull market

The S&P 500 (^GSPC) is almost in a bull market. But that doesn't mean everyone is jumping on the index to keep climbing higher.

Data from the CFTC's Commitments of Traders report, compiled by Bespoke, shows S&P 500 futures are 17.4% short. This is the worst value since September 2007.

According to Bespoke, it hasn't taken the S&P 500 this long to stage a bull market from the lows since 1957-1958. And the slow uptrend is making strategists increasingly confused about what's next.

There are people who say the breadth of the rally is worrying or not.

“While there will no doubt be individual stocks that will see accelerated growth from spending on AI this year, we don't think this will be enough to meaningfully change the course of the overall cyclical earnings trend as sales slow and the Cost pressures remain.” Mike Wilson, Morgan Stanley's chief investment officer, wrote in a note to clients on Monday.

Investors haven't bet this heavily on the S&P 500 falling since 2007.

Strategists like Wilson are pointing to a delayed impact of Fed tightening and the possibility of earnings falling in the second half of the year. But there's also a growing case that bulls will remain strong through the end of 2023.

To officially rise 20% from its October low and enter a bull market, the S&P 500 needs to hit 4,292.44. Four strategists closely watching Yahoo Finance have raised their price target in just the last week. The most recent of these is Brian Belski, chief investment strategist at BMO Capital Markets.

“Throughout the five months of the year, it has become increasingly clear to us that stock market resilience will continue,” Belski wrote in a note Monday. “Admittedly, we started the year more cautiously than in the past given the….” The market faced a multitude of uncertainties as we entered 2023, but it seems that all the doom and gloom that many others had been forecasting is now finally over has become a reality.”

Artificial intelligence has been the driver of the recent uptrend in stocks. Nvidia (NVDA), the fourth-heaviest stock on the S&P 500, is up about 35% in the last month after the company forecast higher-than-expected sales for the current quarter on the back of AI demand. Microsoft (MSFT), Google (GOOGL) and Meta (META) stocks have also risen sharply this year. Even Tesla (TSLA), whose stock price has risen for various reasons, is viewed by some as an AI game.

While the upswing was substantial, not all of Wall Street has declared it over yet.

“The AI ​​hype surrounding the tech sector is real and will likely drive the future growth of many stocks in this space,” Belski wrote. “Despite an extremely strong industry performance (year-to-date), we believe momentum, while slowing somewhat, is likely to continue for the foreseeable future.”

Julian Emmanuel, who leads Evercore ISI's equity and portfolio strategy, believes we have entered a “market momentum” fueled by the AI ​​rebound. This means, according to Emmanuel, that things will be volatile. Perhaps the hint that those who are historically betting against the S&P 500 is correct after all.

Or maybe Emmanuel, who on Sunday raised his full-year price target for the S&P 500 to 4,450 from 4,150, is right at the end of the year. Either way, it could be a bumpy road into the next bull market.

“Remember to ‘check your feelings at the door,' because it's probably going to be quite a rollercoaster ride — sometimes exciting, other times terrifying,” Emmanuel wrote. “That's just the way ‘momentum markets' are. And emotions remain the biggest drag on long-term investment returns.”

Josh is a reporter for Yahoo Finance.

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