AAII Sentiment Survey: Pessimism Stays Above 60%

The results from the latest AAII Sentiment Survey show pessimism about the short-term direction of the stock market continuing to stay near record high levels. Plus, this week’s bullish sentiment reading ranks among the 50 lowest in the survey’s history.

Bullish sentiment, expectations that stock prices will rise over the next six months, increased by 2.2 percentage points to 20.0%. Optimism is below its historical average of 38.0% for the 45th consecutive week. It is also unusually low for the fifth consecutive week and the 28th time in 39 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, declined 2.2 percentage points to 19.2%. Neutral sentiment is below its historical average of 31.5% for the 21st time in 23 weeks. It is also at an unusually low level. The breakpoint between typical and unusually low readings is 23.1%.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.1 percentage points to 60.8%. This is the first time in the survey’s history, pessimism is above 60% on consecutive weeks (it was 60.9% last week). Bearish sentiment is above its historical average of 30.5% for the 44th time out of the past 45 weeks and is at an unusually high level for the 29th time out of the last 37 weeks. The breakpoint between typical and unusually high readings is currently 40.6%.

The bull-bear spread (bullish minus bearish sentiment) is -40.9% and is unusually low for the 30th time in 36 weeks. This week’s reading ranks among the most negative in the survey’s history. The breakpoint between typical and unusually low readings is currently -11.0%.

Bearish sentiment has only been above 60% four other times prior to last week and this week. Those dates were August 31, 1990 (61.0%), October 19, 1990 (67.0%), October 9, 2008 (60.8%), and March 5, 2009 (70.3%).

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 results:

• Bullish: 20.0%, up 2.2 percentage points
• Neutral: 19.2%, down 2.2 percentage points
• Bearish: 60.8%, down 0.1 percentage points

Historical averages:

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