Bears Go Back Into Hibernation

Summary

• Bullish sentiment turned slightly lower this week in spite of the S&P 500’s move higher, shedding 0.9 percentage points to come in at 31.9%.
• Bearish sentiment fell for a second week in a row, falling another 7.9 percentage points to 27.5%.
• Neutral sentiment clipped above 40% this week for the highest level since January 2020.

gopixa/iStock via Getty Images

The last couple weeks of the first quarter have seen equities reverse a sizable portion of this year’s losses, and sentiment has rebounded in sync, though bullish sentiment turned slightly lower this week in spite of the S&P 500’s move higher. From the weekly AAII sentiment survey, bullish sentiment shed 0.9 percentage points coming in at 31.9%. Even after that decline, the current level of reported optimism remains above all others (outside of last week) since early January, but bullish sentiment still would need to rise another 6 percentage points to move back up to its historical average.

AAII Bullish Sentiment: 2009-2022 (Author)

While more investors are not reporting much optimism, fewer are outright bearish. Bearish sentiment fell for a second week in a row, falling another 7.9 percentage points to 27.5%. With a little over a quarter of respondents reporting as bearish, this sentiment reading is at the lowest level since November. That is also now the biggest two-week decline in bearish sentiment (22.3 percentage points) since November 2009, when it had fallen 23.74 percentage points in a two-week span.

AAII Bearish Sentiment: 2009-2022 (Author)

Finally, we would note that given bearish sentiment has plummeted at a historic rate without much of an increase in bullish sentiment, neutral sentiment has picked up the difference. That reading clipped above 40% this week for the highest level since January 2020.

AAII Neutral Sentiment: 2009-2022 (Author)

Other sentiment surveys like the Investors Intelligence one and NAAIM’s Exposure Index have also pivoted more bullish this week. As a result, our sentiment composite is close to zero, meaning across these three indicators, sentiment is now only just slightly below the historical average.

Sentiment Composite Since 2006 (Author)

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Comments

[hmp49]

Few stock market participants actually believe the Fed will be aggressive in raising rates

80% of Fed fund traders OTOH think we'll be 100 basis points (or even 125 basis points) higher by the June 15 Fed meeting. Almost 20% think we'll see a 50 basis point increase at one of the two next Fed meetings, and a 75 basis point increase at the other

and 70% think we'll be at 2.5% or higher on Fed funds by the end of the year

www.cmegroup.com/...

[fujilomi]

My sentiment will shade to the bearish side until peace breaks out and things can get better instead of deteriorate. The technicals for my stuff are bullish MACD wise though.

[hmp49]

@fujilomi

The market has already gotten past Ukraine. Once "peace breaks out" attention will turn to higher interest rates