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Optimism among individual investors fell to a six-month low in the latest AAII Sentiment Survey. Neutral sentiment declined slightly, while pessimism jumped.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.6 percentage points to 19.2%. Optimism was last lower on September 22, 2022 (17.7%). Bullish sentiment is at an unusually low level for the fourth consecutive week and the 44th time out of the past 63 weeks. Bullish sentiment is also below its historical average of 37.5% for the 67th time out of the past 69 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined by 1.0 percentage points to 32.4%. At 11 consecutive weeks, this is the longest stretch of above-average readings since a 22-week stretch between August 2019 and January 2020. The historical average for neutral sentiment is 31.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 6.7 percentage points to 48.4%. Pessimism was last higher on December 22, 2022 (52.3%). This is the third consecutive week and the 42nd time out of the past 63 weeks that bearish sentiment is at an unusually high level. Bearish sentiment is also above its historical average of 31.0% for the 64th time out of the past 69 weeks.
The bull-bear spread (bullish minus bearish sentiment) decreased by 12.3 percentage points to -29.2% and remains unusually low for the fourth consecutive week. The bull-bear spread is at an unusually low level for the 46th time out of the past 63 weeks.
This week’s bullish sentiment reading is the 34th lowest recorded since the Sentiment Survey started in July 1987. The survey period included the failure of Silicon Valley Bank and Signature Bank, as well as the recent headlines surrounding Credit Suisse. These banking issues notwithstanding, 12 of the survey’s 50 lowest bullish sentiment readings have been recorded during the current reflation bear market.
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. Similarly, the market benchmark has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually high readings for bearish sentiment.
Beyond the recent headline-related volatility, monetary policy, interest rates, inflation, and the pace of economic growth are all influencing individual investors’ short-term outlook for stocks.
This week’s special question asked AAII members how they would describe the current valuation of stocks. Here are the responses:
- Stocks, in general, are fairly valued: 11.5%
- Stocks, in general, are undervalued: 12.3%
- Stocks, in general, are overvalued: 24.6%
- Valuations are mixed, with some stocks expensive and others cheap: 45.2%
- Not sure/no opinion: 6.4%
This week’s AAII Sentiment Survey results:
- Bullish: 19.2%, down 5.6 percentage points
- Neutral: 32.4%, down 1.0 percentage points
- Bearish: 48.4%, up 6.7 percentage points
Historical averages:
- Bullish: 37.5%
- Neutral: 31.5%
- Bearish: 31.0%
The AAII Sentiment Survey has been conducted weekly since July 1987.