US stock market sentiment is nearly as unfavorable as it was in March 2009. The latest American Association of Individual Investors (AAII) Sentiment Survey shows that the percentage of individual investors describing their six-month outlook for stocks as ‘bearish’ rebounded to its highest level since 2009. Also, this week’s bullish sentiment reading ranks among the 20 lowest in the survey’s history.
What is driving sentiments?
Continued volatility in the major stock indexes along with inflation, corporate earnings, monetary policy 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 politics and the ongoing invasion of Ukraine by Russia.
Bullish sentiment, expectations that stock prices will rise over the next six months, pulled back by 8.4 percentage points to 17.7%.
Bullish sentiment remains below its historical average of 38.0% for the 44th consecutive week.
Bullish sentiment is also unusually low for the fourth consecutive week and the 27th time in 38 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, decreased by 6.5 percentage points to 21.4%.
Neutral sentiment is below its historical average of 31.5% for the 20th time in 22 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose sharply by 14.9 percentage points to 60.9%.
Pessimism was last higher on March 5, 2009 (70.3%).
Bearish sentiment is above its historical average of 30.5% for the 43rd time out of the past 44 weeks and is at an unusually high level for the 28th time out of the last 36 weeks.
S&P 500 index and sentiments
Following the market’s downturn in March 2009, the S&P 500 gained about 38% in the following three months and approximately 67% during the following year. In fact, since the financial crisis, buying at such sentimental extremes has essentially never been a losing investment.