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The latest AAII Sentiment Survey results show a large reversal from last week. Pessimism dropped while optimism jumped.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 8.1 percentage points to 26.1%. Despite recent increases, optimism remains below its historical average of 38.0% for the 43rd consecutive week. Bullish sentiment is also unusually low for the third consecutive week and the 26th time in 37 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.8 percentage points to 27.9%. Neutral sentiment is below its historical average of 31.5% for the 19th time in 21 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 7.3 percentage points to 46.0%. Bearish sentiment is above its historical average of 30.5% for the 42nd time out of the past 43 weeks and is at an unusually high level for the 27th time out of the last 35 weeks. The breakpoint between typical and unusually high readings is currently 40.5%.

The bull-bear spread (bullish minus bearish sentiment) is –19.9% and is unusually low for the 28th time in 34 weeks. The breakpoint between typical and unusually low readings is currently –10.9%.

Approximately three-quarters of responses to this week’s survey were recorded before Tuesday’s large drop in the major indexes.

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. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.

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.