AAII Sentiment Survey: Pessimism Soars to a 7-Year High

The percentage of individual investors expecting stocks to fall over the short term is at its highest level in seven years. The latest AAII Sentiment Survey also shows a steep drop in optimism and a continued decline in neutral sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 9.0 percentage points to 29.7%. The drop more than reversed last week’s gain and put optimism at its lowest level since October 9, 2019 (20.3%). The historical average is 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 2.7 percentage points to 19.0%. Neutral sentiment was last lower on December 26, 2018 (18.2%). This week’s drop keeps neutral sentiment below its historical average of 31.5% for the eighth time in nine weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, soared 11.7 percentage points to 51.3%. Pessimism was last higher on April 11, 2013 (54.5%). The large increase keeps bearish sentiment above its historical average of 30.5% for the fifth time in seven weeks.

Pessimism is now at an unusually high level (more than one standard deviation above the historical average). Historically, this has had a weaker association with above-average returns for the S&P 500 index over the following six- and 12-month periods than unusually low levels of optimism. (Bullish sentiment remains within its typical historical range.)

Neutral sentiment is at an unusually low level (more than one standard deviation below the historical average). Historically, such readings have been followed by below-average and below-median returns for the S&P 500 over the following six- and 12-month periods. This historical evidence is influenced by low readings recorded during the early 1990s recession, the dot-com bubble burst and the financial crisis.

The big jump in pessimism is a reflection of the downside volatility we’ve seen in the market, the COVID-19 (coronavirus) pandemic and the oil price cut announced by Saudi Arabia. As we noted last week, many—but not all—individual investors are using the downturn to look for buying opportunities among stocks. Other factors influencing individual investors’ sentiment include the November elections, corporate earnings, economic growth and valuations.

This week’s AAII Sentiment Survey results:

• Bullish: 29.7%, down 9.0 percentage points
• Neutral: 19.0%, down 2.7 percentage points
• Bearish: 51.3%, up 11.7 percentage points

Historical averages:

• Bullish: 38.0%
• Neutral: 31.5%
• Bearish: 30.5%

Want to weigh in? Take the survey yourself and see results online at www.aaii.com/sentimentsurvey.

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See more Sentiment Survey results.