AAII Sentiment Survey: Market Pessimism Unusually High, Optimism Lower Than Normal

The results from the latest AAII Sentiment Survey show a large increase in pessimism and corresponding large drop in optimism. Pessimism and optimism are now at unusually high and low levels, respectively.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.1 percentage points to 26.7%. Cumulatively, optimism has fallen by 21.3 percentage points over the recent three-week period. The historical average is 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased by 0.5 percentage points to 31.0%. The historical average is 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 6.7% percentage points to 42.4%. Pessimism was last at this level on August 19, 2020 (42.4%). The historical average is 30.5%.

As noted above, bearish sentiment is now at an unusually high level and bullish sentiment is at an unusually low level. Historically, both have been followed by better-than-average and better-than-median returns for the S&P 500 index over the following six months.

The big shift in sentiment follows the emergence of the omicron variant, the possibility of an accelerated end to bond purchases by the Federal Reserve and the market’s reaction to both. Many AAII members are long-term investors and do not necessarily change their allocations in response to short-term events.

In this week’s special question, we asked AAII members how they thought the average consumer was faring relative to a year ago.

Four out of 10 respondents (40%) perceive the average consumer as being worse off. These respondents mention inflation and coronavirus variants as affecting their income and spending power. An additional 5% of respondents think consumers are much worse off than last year.

Conversely, 25% of respondents feel that consumers are better off than last year. They cite a stronger economy and more jobs being available. About 21% of respondents have mixed opinions on whether the consumer is doing better or not, acknowledging a stronger economy but also rising prices that detract from consumers’ income.

Here is a sampling of the responses:

• “Worse. Inflation is higher and fixed-income investors are losing to inflation and zero interest rates.”
• “Better. Because businesses are more open and vaccines are working.”
• “The average consumer is doing relatively well, with more cash on hand. This is offset somewhat by higher inflation, which has a disproportionate impact on consumers with lower incomes.”
• “Much worse than a year ago. Seeing a downward trend.”

See more Sentiment Survey results.