AAII Sentiment Survey: Optimism Jumps To A 9-Week High

Optimism among individual investors about the short-term direction of the stock market rose to a nine-week high in the latest AAII Sentiment Survey. At the same time, pessimism plunged to a nine-week low.

Bullish sentiment, expectations that stock prices will rise over the next six months, increased by 4.0 percentage points to 26.6%. Optimism was last higher on August 25, 2022 (27.7%). Even with the increase, bullish sentiment remains below its historical average of 38.0% for the 49th consecutive week. It is also unusually low for the ninth consecutive week and the 32nd time in 43 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, jumped 6.6 percentage points to 27.7%. This is a six-week high. Nonetheless, neutral sentiment is below its historical average of 31.5% for the 25th time in 27 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 10.6 percentage points to 45.7%. Pessimism was last lower on August 25, 2022 (42.4%). Bearish sentiment is above its historical average of 30.5% for the 48th time out of the past 49 weeks. It is also at an unusually high level for the 33rd time out of the last 41 weeks. The breakpoint between typical and unusually high readings is currently 40.7%.

The bull-bear spread (bullish minus bearish sentiment) is –19.1% and is unusually low for the 32nd time in 40 weeks. The breakpoint between typical and unusually low readings is currently –11.4%.

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.

October’s rebound in the major stock indexes has helped to boost bullish sentiment from its recent lows. However, individual investors’ short-term expectations are still being influenced by continued volatility in the major stock indexes along with inflation, corporate earnings and increased chatter about the possibility of a recession. Also influencing sentiment are monetary policy, politics and the ongoing invasion of Ukraine by Russia.

This week’s AAII Sentiment Survey results:

• Bullish: 26.6%, up 4.0 percentage points
• Neutral: 27.7%, up 6.6 percentage points
• Bearish: 45.7%, down 10.6 percentage points

Historical averages:

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

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