AAII Sentiment Survey: Optimism Drops Below 20%

The results from the latest AAII Sentiment Survey show optimism about the short-term direction of the stock market falling below 20% for the first time in nine weeks. At the same time, pessimism rose to an 11-week high.

- Expectations that stock prices will rise over the next six months, declined 3.8 percentage points to 18.1%. Optimism was last lower on April 28, 2022 (16.4%).

- This is the 25th lowest weekly reading in the survey's 35-year history.

- The pullback keeps bullish sentiment below its historical average of 38.0% for the 42nd consecutive week.

- Expectations that stock prices will stay essentially unchanged over the next six months, increased 1.0 percentage points to 28.7%.

- Neutral sentiment is below its historical average of 31.5% for the 18th time in 20 weeks.

-Expectations that stock prices will fall over the next six months, rose 2.9 percentage points to 53.3%.

-Bearish sentiment is above its historical average of 30.5% for the 41st time out of the past 42 weeks and is at an unusually high level for the 26th time out of the last 34 weeks.

-The breakpoint between typical and unusually high readings is currently 40.5%.

The spread (bullish minus bearish sentiment) is –35.2% and is unusually low for the 27th time in 33 weeks. The breakpoint between typical and unusually low readings is currently –10.9%. The bull-bear spread has also broken its second-longest streak of negative readings, as sentiment has remained in favor of bears for the 23rd week in a row.

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. The S&P 500 has also realized above-average and above-median returns following unusually high levels of pessimism.

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.