AAII Sentiment Survey: Pessimism Jumps Back Above 50%

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The percentage of individual investors expecting stock prices to fall over the next six months is above 50% for the fifth time in eight weeks. The latest AAII Sentiment Survey also shows short-term optimism about stocks falling below 20%.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.6 percentage points to 19.4%. The drop puts optimism at a seven-week low. Bullish sentiment is below its historical average of 38.0% for the 30th consecutive week and at an unusually low level for the 17th time in 21 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged by 9.9 percentage points to 22.2%. Neutral sentiment is below its historical average of 31.5% for the seventh time in eight weeks. It is also at an unusually low level for the second time in seven weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 11.5 percentage points to 58.3%. This is a seven-week high. It keeps bearish sentiment above its historical average of 30.5% for the 29th time out of the past 30 weeks and at an unusually high level for the 10th time in 11 weeks.

The bull-bear spread (bullish minus bearish sentiment) is –38.9% and is unusually low for the 20th time in 23 weeks.

Most of this week’s responses were recorded prior to yesterday when the Federal Open Market Committee (FOMC) announced a 75-basis-point interest rate hike.

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. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500. The S&P 500 has also underperformed following periods of below-average neutral sentiment, though the link is weaker.

Continued downward volatility in the major stock indexes along with corporate earnings may have heightened concerns among many individual investors about the possibility of further downside in the stock market. Also influencing sentiment are inflation, interest rates, the coronavirus pandemic, politics, the ongoing invasion of Ukraine by Russia, stock market volatility and the economy.

This week’s AAII Sentiment Survey results:

  • Bullish: 19.4%, down 1.6 percentage points
  • Neutral: 22.2%, down 9.9 percentage points
  • Bearish: 58.3%, up 11.5 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.

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