AAII Sentiment Survey: Both Optimism And Pessimism Rise

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.

This week’s AAII Sentiment Survey readings:

• Bullish: 22.6%, up 2.2 percentage points
• Neutral: 21.2%, down 2.5 percentage points
• Bearish: 56.2%, up 0.3 percentage points

Historical averages:

• Bullish: 38.0%
• Neutral: 31.5%
• Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987.