Sunken sentiment: Investors fear 1987-like fall

A trader on the New York Stock Exchange holds his head in October 1987 as stocks were devastated during one of the most frantic days in the exchange's history.
Maria R. Bastone | AFP | Getty Images

Investor sentiment is continuing to deteriorate, according to surveys and Wall Street market strategists.

"The bulls dipped further to 24.7 percent, from 26 percent a week ago. That is a big drop from late April when the bulls were 57.4 percent," John Gray of Investors Intelligence wrote in a note to clients Wednesday. "We now see optimism below the March 2009 low of 26.4 percent."

Fundstrat's Tom Lee met with investors in Boston on Monday and found the qualitative level of fear was even worse than what the sentiment stats implied.

"A surprising number see this as 1987 again and 1998. Most portfolio managers expected equities to fall below the August lows. Monday's mood was worsened by tumbling tape, but many talked about how this felt like 1987 to them," Lee wrote in the note to clients Wednesday.

The Dow Jones industrial average lost 23 percent on October 19, 1987, on a day that's become known as "Black Monday."

"Ultimately," Lee added, "investors question the ability of the world to grow without China. A recurring theme in the meetings is the skepticism, and therefore, pessimism about world growth with China slowing."

Here's why the dire negativity may present a buying opportunity.

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