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Pessimism among individual investors about the short-term direction of the stock markets rebounded strongly after having fallen to a seven-month low last week. The latest AAII Sentiment Survey also shows drops in both bullish and neutral sentiment.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.5 percentage points to 25.1%. The drop keeps bullish sentiment below its historical average of 38.0% for the 51st consecutive week. It is also unusually low for the 33rd time in 45 weeks. The breakpoint between typical and unusually low readings is currently 27.5%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged by 8.7 percentage points to 27.9%. The pullback puts neutral sentiment below its historical average of 31.5% for the 26th time in 29 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, jumped by 14.1 percentage points to 47.0%. Pessimism is above its historical average of 30.5% for the 50th time out of the past 51 weeks. It is also at an unusually high level for the 34th time out of the last 43 weeks. The breakpoint between typical and unusually high readings is currently 40.7%.
The bull-bear spread (bullish minus bearish sentiment) is –22.0% and is unusually low for the 33rd time in 42 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.
Even with the rebound in the major stock indexes, 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: 25.1%, down 5.5 percentage points
- Neutral: 27.9%, down 8.7 percentage points
- Bearish: 47.0%, up 14.1 percentage points
Historical averages:
- Bullish: 38.0%
- Neutral: 31.5%
- Bearish: 30.5%
The AAII Sentiment Survey has been conducted weekly since July 1987. The survey and its results are available online.
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