AAII Sentiment Survey: Both Optimism and Pessimism Rise
by AAII Staff | October 20, 2022
Both optimism and pessimism about the short-term direction of the stock market rose in the latest AAII Sentiment Survey. All three readings—bullish, neutral and bearish sentiment—are at unusual levels, as is the bull-bear spread.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 2.2 percentage points to 22.6%. Optimism is below its historical average of 38.0% for the 48th consecutive week. It is also unusually low for the eighth consecutive week and the 31st time in 42 weeks. The breakpoint between typical and unusually low readings is currently 27.6%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 2.5 percentage points to 21.2%. Neutral sentiment is below its historical average of 31.5% for the 24th time in 26 weeks. It is also unusually low for the fourth time in five weeks. The breakpoint between typical and unusually low readings is 23.1%.
Bearish sentiment, expectations that stock prices will fall over the next six months, increased 0.3 percentage points to 56.2%. Pessimism is above its historical average of 30.5% for the 47th time out of the past 48 weeks and is at an unusually high level for the 32nd time out of the last 40 weeks. The breakpoint between typical and unusually high readings is currently 40.7%.
The bull-bear spread (bullish minus bearish sentiment) is –33.6% and is unusually low for the 31st time in 39 weeks. This week’s reading ranks among the 30 most negative in the survey’s history. The breakpoint between typical and unusually low readings is currently –11.3%.
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 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. The S&P 500 has underperformed following periods of below-average neutral sentiment, though the link is weaker.
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, politics and the ongoing invasion of Ukraine by Russia.
Bullish: 22.6%, up 2.2 points
Neutral: 21.2%, down 2.5 points
Bearish: 56.2%, up 0.3 points
Bullish: 38.0%
Neutral: 31.5%
Bearish: 30.5%
See more Sentiment Survey results.
Discussion
ERIC R from WA posted over 3 years ago:
What very few are talking about is that much of our financial and economic future depends on a peaceful resolution of the war in Ukraine. Putin is not the type of individual who will just give up - especially without showing a major 'win" for Russia. My big worry here is a nuclear disaster, either because of an another attack on a nuclear facility in Ukraine or because of the use of a "low yield" nuclear bomb on Ukraine by Putin. This would be without precedent! It seems to me that US business news are almost entirely focused on the Fed, a looming recession, currency issues, company specific issues, a Bear market and so on. However, the big "Boogy Man" here is Nuclear War - however limited - and no one obviously wants to talk too much about it. Things to consider in this possible scenario are, 1. What will the US and NATO response be if the "unthinkable" happens? What if these low yield nuclear weapons reach Poland or another NATO member? Do we Stand by? Threaten Russia without substance because in the West (especially in Europe) the decision making process will likely be "frozen" due to extreme fear? (Remember Obama's "Red Line" in Syria?!) Retaliate with our own low yield nukes? Retaliate with conventional weapons and forces? Start a general draft of young men? 2. What will the markets' response be? We know it won't be good. Are average investors prepared - say with alternative investments (ie. Gold and other precious metals)? 3. A "low yield limited" nuclear attack or war won't necessarily mean the end of the world... Just as the last Pandemic did not lead to it. However, it will be a serious paradigm change just a COVID-19 has been worldwide. Many deaths, many affected by long-term health problems, and many bankruptcies! Governments are still stretched thin by the Pandemic so a World War III scenario -even a "limited" and short one- will create havoc world-wide and topple entire governments and countries. In the end, if no one is prepared (again) for another catastrophic event, as happened with COVID -- in fact, despite countless warnings over the decades, the US and most other governments decided to ignore the risk of a world-wide pandemic (I remember reading a book in 1994, The Coming Plague, by Farrar, Straus and Giroux, which opened my eyes to this risk) --then we'll be guilty of ignorance and carelessness at the very least and we'll deserve the consequences.
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