AAII Sentiment Survey: Pessimism Continues to Fall as Optimism Rises

Pessimism among individual investors about the short-term direction of the stock market continued to decline, falling to a seven-week low in the latest AAII Sentiment Survey. At the same time, optimism extended its rebound into a second week by rising to a seven-week high.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.7 percentage points to 29.6%. The increase puts optimism back within its typical range of readings for the first time since June 2, 2022. (The breakpoint between typical and unusually low readings is currently 27.7%.) Nonetheless, bullish sentiment is below its historical average of 38.0% for the 35th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 1.6 percentage points to 28.2%. Neutral sentiment is below its historical average of 31.5% for the 12th time in 13 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped 4.3 percentage points to 42.2%. Pessimism was last lower on June 2, 2022 (37.1%). Bearish sentiment is above its historical average of 30.5% for the 34th time out of the past 35 weeks and is at an unusually high level for 23rd time out of the last 27 weeks. The breakpoint between typical and unusually high readings is currently 40.5%.

The bull-bear spread (bullish minus bearish sentiment) is –12.6% and is unusually low for the 23rd time in 26 weeks. The breakpoint between typical and unusually low readings is currently –10.8%.

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

Continued volatility in the major stock indexes along with inflation, corporate earnings and increased chatter about the possibility of a recession are all likely weighing on individual investors’ short-term expectations for the stock market. Also influencing sentiment are monetary policy, the coronavirus pandemic, politics and the ongoing invasion of Ukraine by Russia.

See more Sentiment Survey results.