Individual Investor Sentiment May Be Too Bullish

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The American Association of Individual Investors released their Sentiment Survey today and bullish sentiment is reported at 49.9%. This is slightly above the +1 standard deviation level of 48.4%. As can be seen in the below chart, the bullish sentiment level has spiked higher subsequent to the U.S. presidential election from a few weeks ago. Although not shown on the chart, the bull/bear spread widened to +20.1 and is the widest level since November of last year.

Data Source: AAII

Individual investor sentiment measures are contrarian ones, and at their extremes, frequently coincide with market reversals or pullbacks. Given the strength of the market averages since the election, an equity market pullback or consolidation would not be surprising and actually healthy for a next move higher.