AAII Sentiment Survey: Lowest Optimism In Nearly 30 Years

The results from the latest AAII Sentiment Survey show optimism among individual investors falling to a level not seen in nearly 30 years. Meanwhile, both neutral and bearish sentiments rose.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 8.9 percentage points to 15.8%. This is among the 10 lowest readings in the survey’s history, which dates back to 1987. Optimism was last lower on September 4, 1992 (14.0%). Bullish sentiment is below its historical average of 38.0% for the 21st consecutive week and is at an unusually low level (below 27.9%) for the 11th time out of the last 14 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 1.8 percentage points to 35.7%. This is the fourth consecutive week that neutral sentiment is above its historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped by 7.0 percentage points to 48.4%. The increase keeps pessimism at an unusually high level for the 10th time in 13 weeks. It also keeps bearish sentiment above its historical average of 30.5% for the 20th time out of the last 21 weeks.

Historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and for the bull-bear spread. (This week’s bull-bear spread of -32.6% is unusually low too.) Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.

Continued high rates of inflation, the ongoing invasion of Ukraine by Russia, rising interest rates and Washington politics are influencing individual investors’ outlook for stocks. Other factors include supply chain issues, monetary policy and corporate earnings.

In this week’s special question, we asked AAII members to share what portfolio changes, if any, they made as a response to rising interest rates and bond yields. Slightly more than one-third of respondents (36%) say that they are making no changes in light of rising rates and bond yields.

Of those who are making changes, many respondents list more than one. About 23% of respondents say that they are altering their equity exposure, such as selling, buying, purchasing equity exchange-traded funds (ETFs) and more. Around 22% indicate that they are making bond changes because of the increasing rates and yields. Roughly 11% of responses say they are moving more of their portfolio into cash. Additionally, 4% of responses mention changing their overall strategy, such as moving from growth stocks to value stocks.

Here is a sampling of the responses:

• “The Federal Reserve’s interest rate increase was anticipated, so no reactionary changes.”
• “I’m purchasing stocks as the market trends down and volatility pushes stocks of interest to my target prices. I’m also purchasing bonds with higher coupon rates than current fixed-rate loans to arbitrage the difference.”
• “I have purchased Treasury I bonds as an inflation hedge, but otherwise have not adjusted the bond portion of my portfolio (yet).”
• “I’ve moved half of my portfolio to cash.”
• “I’m shifting my focus to more stable and/or passive activity on my own part, building cash, watching the charts and reducing my holdings I see signaling declines.”

This week’s AAII Sentiment Survey results:

• Bullish: 15.8%, down 8.9 percentage points
• Neutral: 35.7%, up 1.8 percentage points
• Bearish: 48.4%, up 7.0 percentage points

Historical averages:

• Bullish: 38.0%
• Neutral: 31.5%
• Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987. The survey and its results are available online.