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Pessimism among individual investors plunged this week but remains at an unusually high level in the latest AAII Sentiment Survey. Additionally, both bullish and neutral sentiment rose.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 4.6 percentage points to 22.8%. Bullish sentiment is below its historical average of 38.0% for the 32nd consecutive week and at an unusually low level for the 21 of the last 25 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 8.1 percentage points to 30.5%. Neutral sentiment is below its historical average of 31.5% for the ninth time in 10 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 12.6 percentage points to 46.7%. Bearish sentiment is above its historical average of 30.5% for the 31st time out of the past 32 weeks and at an unusually high level for 20 of the last 24 weeks.
The bull-bear spread (bullish minus bearish sentiment) is -23.9% and is unusually low for the 22nd time in 25 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. 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 underperformed following periods of below-average neutral sentiment, though the link is weaker.
Continued volatility in the major stock indexes along with inflation, corporate earnings and increased chatter about the possibility of a recession are all likely weighing on individual investors’ short-term expectations for the stock market. Also influencing sentiment are monetary policy, the coronavirus pandemic, politics and the ongoing invasion of Ukraine by Russia.
This week’s AAII Sentiment Survey results:
- Bullish: 22.8%, down 4.6 percentage points
- Neutral: 30.5%, up 8.1 percentage points
- Bearish: 46.7%, down 12.6 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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