AAII Sentiment Survey: Bullish Sentiment Falls to a Three-Month Low

The results from the latest AAII Sentiment Survey show bullish sentiment falling to its lowest level in three months. In addition, the number of investors describing their outlook for stocks as “bearish” rose to the upper end of its typical historical range.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased 4.5 percentage points to 25.2%. This is the fourth consecutive week that bullish sentiment remains below the historical average of 38.0%. Bullish sentiment was last lower on September 16, 2021 (22.4%).

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, decreased by 4.3 percentage points to 35.4%. This is the second consecutive week that neutral sentiment is above the historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased by 8.8 percentage points to 39.3%. This is bearish sentiment’s fourth consecutive week above the historical average of 30.5%.

Bullish sentiment is at an unusually low level. Historically, unusually low levels of optimism have been followed by better-than-average and better-than-median returns for the S&P 500 index over the following six- and 12-month periods. Bearish sentiment is near the top end of its typical range, as noted above. The breakpoint between typical and unusually high levels of pessimism is currently 40.1%.

Bullish sentiment has remained below average since the new coronavirus omicron variant began spreading. The return to normalcy from the coronavirus pandemic, monetary and fiscal stimulus and inflationary pressures also continue to influence individual investors’ outlook for stocks. Additional factors include earnings, valuations and the Biden administration’s initiatives.

In this week’s special question, we asked AAII members what they thought about the weakness that small-cap stocks have experienced over the past four weeks.

Three out of 10 respondents (30%) say that they attributed their poor performance to a volatile and inflationary market, with small-cap stocks being more sensitive to macroeconomic trends. Meanwhile, 24% of respondents have a neutral or unfazed point of view, with respondents saying they don’t invest in small-cap stocks. About 15% of respondents mention seeking a safer investment in large-cap stocks, as larger companies can absorb the higher costs and protect their profits better. Conversely, 14% of respondents attribute small-cap weakness to ongoing factors of the coronavirus, such as the new omicron variant. Lastly, 11% of respondents have a positive outlook on the situation, indicating that this could be a buying opportunity for those who invest in small-cap stocks.

Here is a sampling of the responses:

• “I think inflation is holding them down and will continue to do so for the next year.”
• “I am not concerned. I do not generally invest in small-cap stocks as it is hard for me to clearly understand their business position.”
• “It’s difficult to compete with larger companies that can absorb the increased salaries (competition for skilled workers) as well as financing costs. The supply chain has a negative impact on both types of companies, but again most large caps can absorb this better than small caps.”
• “Uncertain times with the omicron variant and the Federal Reserve’s tapering causing a shift toward large stable stock choices rather than small caps or mid caps.”
• “It’s because of year-end selling and correction; it’s an opportunity to buy quality small-cap value.”

See more Sentiment Survey results.