Bearish Investor Sentiment Jumps to 48.4% as Pessimism Revives: AAII

Pessimism among individual investors about the short-term outlook for stocks rose in the latest weekly American Association of Individual Investors Sentiment Survey, with nearly half of respondents now expecting stock prices to fall.

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Bearish sentiment, the share of investors expecting stocks to decline over the next six months, reportedly jumped 6.9 percentage points to 48.4%, which is above its historical average of 31.5%.

“Bearish sentiment is unusually high and is above its historical average of 31.5% for the 39th consecutive week,” AAII said.

Bullish sentiment, the share expecting stocks to rise over the next six months, fell 3.7 percentage points to 34.1%. That puts it below its historical average of 37.5% for the second time in three weeks.

Neutral sentiment, which reflects expectations that stocks will stay roughly unchanged, dropped 3.2 percentage points to 17.5%. It has now been below its historical average of 31.0% for 35 straight weeks.

As a result, the bull-bear spread, which measures bullish minus bearish sentiment, fell 10.7 percentage points to -14.3%. The spread has been below its historical average of 6.5% for 16 consecutive weeks.

Some investors are said to view the survey as a contrarian indicator, as extreme pessimism has historically sometimes preceded market gains.

In a special question, AAII asked members what they thought of the Federal Reserve’s decision to keep interest rates unchanged at its October meeting.

A majority, 55.5%, said it was the right move, while 30.7% said the Fed should have raised rates. Just 6.6% said the central bank should have cut rates, and 7.3% were unsure or had no opinion.