AAII Sentiment Survey: Highest Level Of Pessimism Since March 2009

Summary

• Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 2.4 percentage points to 16.4%.
• Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 13.1 percentage points to 24.2%.
• Bearish sentiment, expectations that stock prices will fall over the next six months, rose sharply by 15.5 percentage points to 59.4%.

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The percentage of individual investors describing their six-month outlook for stocks as “bearish” surged to its highest level since 2009 in the latest AAII Sentiment Survey. At the same time, optimism remains at an unusually low level.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 2.4 percentage points to 16.4%. This is just the 35th time in the history of the survey that bullish sentiment is below 20%. (The survey was started in 1987.) Optimism is below its historical average of 38.0% for the 23rd consecutive week and is at an unusually low level (below 27.9%) for the 13th time out of the last 16 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 13.1 percentage points to 24.2%. The drop puts neutral sentiment below its historical average of 31.5% for the first time six weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose sharply by 15.5 percentage points to 59.4%. Pessimism was last higher on March 5, 2009 (70.3%). This is the fourth consecutive week and the 22nd time out of the last 23 that bearish sentiment is above its historical average of 30.5%. It is also the 12th time out of the last 15 weeks with an unusually high level of pessimism.

This week’s bearish sentiment reading ranks among the 10th highest in the history of the survey. This week’s bull-bear spread (bullish minus bearish sentiment) of –42.9% is the sixth most negative it has ever been.

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 ongoing invasion of Ukraine by Russia, stock market volatility, inflation, interest rates, the coronavirus pandemic and politics are all influencing individual investors’ outlook for stocks. Other factors include the economy and corporate earnings.

For this week’s special question, we asked AAII members to share their thoughts on the ongoing volatility in the Nasdaq composite this year.

Slightly more than two out of five respondents (41%) view the volatility from a bearish lens. They believe volatility will continue as long as global factors such as the coronavirus pandemic and the Russia-Ukraine conflict occur. About 20% of respondents say that the volatility was expected and the Nasdaq was due for a correction.

Conversely, approximately 11% have a bullish outlook regarding the volatility and the factors impacting it. Roughly 8% of respondents say that the Nasdaq’s volatility presents them with buying opportunities. Finally, 8% of respondents mention high valuations as the cause of the Nasdaq’s volatility.

Here is a sampling of the responses:

• “The prospect for higher interest rates, higher inflation, continued supply chain problems, labor shortages and international strife will all continue to weigh on the economy.”
• “We’ve seen it before, and I am staying focused on the long term. Counting my dividend income helps me through times like these.”
• “Don’t be scared; the U.S. will get through these tough times alright.”
• “Some great buying opportunities.”
• “The Nasdaq is overvalued. Rising interest rates makes speculation in Nasdaq stocks riskier.”

This week’s AAII Sentiment Survey results:

• Bullish: 16.4%, down 2.4 percentage points
• Neutral: 24.2%, down 13.1 percentage points
• Bearish: 59.4%, up 15.5 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.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.