AAII Sentiment Survey: Pessimism Moves Closer To 50%

Pessimism among individual investors continued to move closer to 50% in the latest AAII Sentiment Survey. Neutral sentiment ended its streak of above-average readings, while optimism rebounded.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.7 percentage points to 20.9%. Optimism is at an unusually low level for the fifth consecutive week and the 45th time out of the past 64 weeks. Bullish sentiment is also below its historical average of 37.5% for the 68th time out of the past 70 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.2 percentage points to 30.2%. The drop puts neutral sentiment below its historical average of 31.5% for the first time since December 29, 2022 (25.9%).

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.5 percentage points to 48.9%. Pessimism was last higher on December 22, 2022 (52.3%). This is the fourth consecutive week and the 43rd time out of the past 64 weeks that bearish sentiment is at an unusually high level. Bearish sentiment is also above its historical average of 31.0% for the 65th time out of the past 70 weeks.

The bull-bear spread (bullish minus bearish sentiment) rose by 1.2 percentage points to –27.9% but remains unusually low for the fifth consecutive week. The bull-bear spread is at an unusually low level for the 47th time out of the past 64 weeks.

This week’s bullish sentiment reading ranks among the 70 lowest readings since the AAII Sentiment Survey started in July 1987. This week’s bearish sentiment reading ranks among the 90 highest readings in the survey’s history. Twenty of those 90 bearish sentiment readings have registered since the start of 2022.

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 the bull-bear spread. Similarly, the market benchmark has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually high readings for bearish sentiment.

Beyond the recent bank headlines and downside market, monetary policy, interest rates, inflation and the pace of economic growth are all influencing individual investors’ short-term outlook for stocks.

This week’s special question asked AAII members how they would describe the current valuation of stocks. Here are the responses:

• Stocks, in general, are fairly valued: 13.6%
• Stocks, in general, are undervalued: 14.6%
• Stocks, in general, are overvalued: 25.4%
• Valuations are mixed, with some stocks expensive and others cheap: 40.5%
• Not sure/no opinion: 5.6%

This week’s AAII Sentiment Survey results:

• Bullish: 20.9%, up 1.7 percentage points
• Neutral: 30.2%, down 2.2 percentage points
• Bearish: 48.9%, up 0.5 percentage points

Historical averages:

• Bullish: 37.5%
• Neutral: 31.5%
• Bearish: 31.0%

The AAII Sentiment Survey has been conducted weekly since July 1987.