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Slightly more than half of all individual investors described their six-month outlook for the stock market as “bearish” in the latest AAII Sentiment Survey. Optimism declined while neutral sentiment rebounded.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.4 percentage points to 23.3%. Optimism was last lower on October 9, 2019 (20.3%). Bullish sentiment is below its historical average of 38.0% for the 10th consecutive week and the 15th week this year.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.4 percentage points to 26.1%. Neutral sentiment remains below its historical average of 31.5% for the 13th consecutive week and the 17th time in 18 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 2.0 percentage points to 50.6%. Pessimism is above its historical average of 30.5% for the 12th consecutive week.

Pessimism is at an unusually high level for the 10th consecutive week. On six of those 10 weeks, bearish sentiment has been at or above 50%. Optimism, meanwhile, is at an unusually low level for the third time in four weeks.

The continued high level of pessimism reflects the coronavirus pandemic and concerns about the economy. However, some AAII members have been encouraged by the rebound in the stock market from its March lows. Many—but not all—have also told us that they have used the downturn to look for buying opportunities among stocks (see this month’s AAII Journal for more). Other factors influencing AAII members’ sentiment include the upcoming November U.S. presidential election, corporate earnings and valuations.

In this week’s special question, we asked AAII members to share their thoughts about the stock market’s rebound from its March lows. Half (50%) of respondents say they think this rebound will be short-lived. Rationale of this group includes the unsustainability of an economic recovery unless a coronavirus vaccine is discovered. This compares to 31% of respondents who say that the market recovery makes sense given the Federal Reserve’s recent efforts to boost liquidity. Similar to the first group, a majority of these respondents state that they believe the market recovery will be unsustainable without a vaccine and/or a return to normalcy. Additionally, 19% of respondents state that the upward move demonstrates growing investor optimism that the stay-at-home orders will soon be lifted.

Here is a sampling of the responses:

• “I believe the rise in the market is due to liquidity from the Fed and positive sentiment from reopening the economy. I worry that the economy (individuals & small businesses) has been hurt so badly and is now so far behind that it will struggle to improve.”
• “I am amazed that there is such a disconnect between the market and the state of the country. Sooner or later the market will reflect the coronavirus pandemic and the impending economic recession.”
• “I hope the rebound continues, but I think it’s short-lived. There are too many overly optimistic expectations about how future earnings growth is priced into these ‘rebounded prices.’”
• “Markets are forward-looking: There’s unprecedented assistance coming from the Fed, most job cuts likely are temporary (furloughs) and the Trump administration will do all that is necessary to ensure reelection. Thus, a rebound from March is not surprising. Of course if the second wave of the coronavirus arrives, then the market will tank again in anticipation of bad news.”