Depressed investor sentiment amid recent volatility is flashing a contrarian signal pointing to more upside ahead for the stock market

• Investor sentiment remains bearish despite the S&P 500 being just 3% below its record high.
• Fearful investors and the absence of euphoria represents a buy signal for contrarian investors.
• Bullish investor sentiment fell for the third week in a row and are well below the historical average in AAII's most recent survey.
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Stocks have historically climbed a wall of worry. And from rising inflation to a US debt ceiling showdown, right now there is no shortage of worry weighing on investors.

That's why there could be more upside left in the stock market, as the absence of euphoric sentiment among investors flashes a buy signal for contrarians.

In fact, even as the S&P 500 trades just 3% below its record high, there is plenty of bearish sentiment. For example, CNN's Fear and Greed Index remains in "Fear" territory with a reading of 34 on Thursday. That's much worse than last month's neutral reading of 53, and slightly less fearful than last week's "Extreme Fear" reading of 25.

The whiplash in investor sentiment over the past month came amid a stock market sell-off that saw the tech-heavy Nasdaq 100 fall nearly 8% from its record high. While the debt ceiling showdown between Republicans and Democrats in Congress contributed to the volatility, so did a swift jump in interest rates, oil prices, and inflationary data.

AAII's investor sentiment survey is also backing up the bearish sentiment found in CNN's Fear and Greed Index. For the week ended October 6, bullish investor sentiment fell to 25.5%, well below the historical average of 38%, and representing the third weekly consecutive drop in bullish sentiment. It was also the fourth consecutive week with bullish sentiment below its historical average.

Finally, Google search trend data for "dow jones" is declining, which DataTrek co-founder Nicholas Carson says is a bullish indicator for stocks. The thinking goes that spikes in stock market volatility lead to Main Street investors panic-searching for answers, while a steady decline in searches represents a sign that consumer confidence is back on the rise.

Since peaking in late September, Google search interest for the term "dow jones" has declined by 32%, suggesting that the consumer is now less focused on stocks and could instead be shifting attention to the upcoming holiday spending season. That would line up with a seasonally bullish year-end period for stocks.

Fundstrat's Tom Lee has echoed the potential for a bullish turnaround in the stock market going into year-end, arguing that the S&P 500 could climb the ongoing wall of worry and surge to 4,700, representing an additional 6% upside from current levels.