AAII Sentiment Survey: Bearish Sentiment Close to a 9-Year High

The results from the latest AAII Sentiment Survey show the percentage of individual investors describing their six-month outlooks for stocks as “bearish” reaching its highest level in nearly nine years. In addition, optimism rebounded but remains well below normal levels.

Bullish sentiment, expectations that stock prices will rise over the next six months, increased 4.1 percentage points to 23.4%. Optimism is below its historical average of 38.0% for the 14th consecutive week. It remains at an unusually low level for the seventh consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 14.6 percentage points to 22.9%. This is the first week neutral sentiment is below the breakpoint between typical and unusually low levels (23.1%) since April 15, 2021 (21.6%). The historical average is 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 10.5 percentage points to 53.7%. This is bearish sentiment’s 14th consecutive week above the historical average of 30.5%. Pessimism was last higher on April 11, 2013 (54.5%).

The bull-bear spread (bullish sentiment minus bearish sentiment) remains unusually low at –30.3%. It was last lower on April 11, 2013 (–35.2%).

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

Inflation, interest rates, the coronavirus pandemic and politics are all influencing individual investors’ outlook for stocks. Other factors include the economy and corporate earnings. The ongoing volatility in the stock market is likely also playing a role.

The survey period runs from Thursday through Wednesday. We point this out because this week’s special question asked how the situation with Russia and Ukraine is impacting members’ short-term outlook on stocks.

Half (50%) of respondents say that the unfolding events in Ukraine are giving them a bearish outlook on stocks. Many of these respondents say that they are becoming more cautious and view the situation as dangerous.

Conversely, 25% of respondents say that the Ukraine crisis is having no impact on their outlook for stocks because they believe the situation is very short-term and are heavily focused on the long term.

Around 13% have a mixed outlook. Roughly 7% of respondents have a bullish outlook and view the situation involving Ukraine and Russia as a buying opportunity or a short-term blip. Lastly, about 6% of responses fell into the “other” category.

Here is a sampling of the responses:

• “The situation in Ukraine is definitely very bad and has a negative effect on the stock market for the foreseeable future.”
• “No impact, I’m a long-term investor.”
• “If Ukraine is invaded by Russia, then the market will go down to a level that investors are comfortable with on a risk/reward basis. The market will rally based upon stability coming to the Ukraine-Russia issue and then economic growth and profitability will determine the next leg up or down.”
• “I think the issue will be resolved within the next six months, and the coronavirus pandemic will be gone. After those two issues are finished, the stocks will be going back into a bull market.”

See more Sentiment Survey results.