Where Have All the Bulls Gone?

After two weeks of sub-20% readings, the share of respondents to the AAII sentiment survey reporting as bullish has risen back up to 22.8%.  That increase in optimism comes on what has been pretty choppy price action in the past week as the S&P 500 had risen then given up roughly 3% since the last update of the AAII numbers.

Bullish Sentiment

The increase in bullish sentiment broke a streak of back-to-back-to-back declines, and the opposite shift in sentiment could be seen for bearish sentiment.  The percentage of respondents reporting as pessimists fell by 12.6 percentage points in the latest week bringing the reading back below 50%.  While the double-digit decline was large, the first week of June actually saw an even bigger drop of 16.4 percentage points.

Bearish sentiment

The significant inverse moves in bullish and bearish sentiment have resulted in the bull-bear spread to move higher, but at -23.9, sentiment continues to heavily favor the bears.

AAII Survey

In fact, taking a four-week moving average of the bull-bear spread shows that the reading has been below -10 (meaning on average bears have outnumbered bulls by at least 10 percentage points) for 23 straight weeks.  That continues to close in on the record six-month streak that ended in February 1991 as bulls are few and far between.

Weak Sentiment

Given the drop in bears this week was far larger than the increase in the number of respondents reporting as bullish, the bulk of the sift went to the neutral camp.  That reading rose 8 percentage points to 30.5%.  While that only leaves the reading at the highest level since the week of June 9th, it was the largest one-week increase since the last week of March and ranks in the top decile of all week-over-week moves on record. Click here to learn more about Bespoke’s premium stock market research service.

Neutral Sentiment

Sentiment Worsens… Again

Even as the ten-year yield and crude oil have pulled back over the last few trading sessions and the S&P 500 has recuperated the losses from late last week, the percentage of respondents to the AAII survey considering themselves bullish fell for the third consecutive week. This week’s reading of 18.2% marks the lowest level since late April and ranks in the bottom 1.3% of all weeks going back to the start of the survey in 1987. On the bright side, the rate of decline in bullish sentiment has been on the decline as the percentage of respondents that considered themselves bullish fell by 11 percentage points two weeks ago, 1.6 percentage points last week, and now just 1.2 percentage points this week.

AAII Bullish Sentiment

The percentage of respondents reporting neutral sentiment moved modestly higher, increasing by just 30 basis points to 22.5%. Click here to learn more about Bespoke’s premium stock market research service.

AAII Neutral Sentiment

The percentage of respondents reporting bearish sentiment rose for the third consecutive week to 59.3%, the highest level since late April. The 4/28 reading was only 10 basis points higher than this week’s, so we are near the previous peak in terms of bearish sentiment. Apart from the late April reading, bearish sentiment had not topped 59% since early March of 2009. In fact, this week’s reading is in the 97th percentile of all readings since the survey began in 1987.

AAII Bearish Sentiment

The bull-bear spread remains near historic lows, and there have now been 22 consecutive weeks in which the spread was below -10 (smoothed out by taking a four week moving average). We are now just four weeks away from setting a new record in this regard. The previous high was in 1991 when there were 26 consecutive weeks in which the bull-bear spread was under -10. Investors often view this as a contrarian indicator, as low readings in bullish sentiment leave upside for the market should sentiment bottom out and positive news emerge. Click here to learn more about Bespoke’s premium stock market research service.

Stock Market Sentiment

Weak Sentiment

Sentiment Swings Back to Optimism

Sentiment has taken a big swing higher across surveys this week as the S&P 500 has experienced some upside mean reversion. The weekly AAII sentiment survey has seen bullish sentiment rebound from a sub-20% reading all the way back up to 32%. Relative to the historical average of 37.84%, that reading continues to show a depressed level of optimism for individual investors, but it is the strongest reading since the week of March 24th.  As for the 12.2 percentage point jump in bullish sentiment week over week, it was the largest one week gain since the week of October 14th of last year when it rose 12.4 percentage points.

Bullish Sentiment

As bullish sentiment surged, there was a massive 16.4 percentage point drop in bearish sentiment.  That was the largest one week decline in the reading on pessimism since July 15, 2010 when it fell 19.27 percentage points. Now at 37.1%, bearish sentiment is at the lowest level since the end of March.

Bearish Sentiment

Such a large decline in bearish sentiment in only one week has pretty much been unheard of in the post Financial Crisis years.  Again, July 2010 was the last time bears fell by at least 15 percentage points and before that there are only about two dozen other occurrences without another instance in the previous three months. While it was a big decline, bearish sentiment remains fairly elevated at 37.1%, but that is inline with most other occurrences since the mid 2000s whereas bearish sentiment was generally lower from the occurrences before 2005.

As for how the S&P 500 has tended to do following these massive bearish sentiment shifts, the S&P 500 has generally tended to move higher with outperformance versus the norm on a median basis one week and one month out. Although again performance is consistently positive, the size of gains have tended to be below or more inline with the norm three, six, and twelve months out from these occurrences.

Performance After Drop in Bearish Sentiment

After the large moves in bulls and bears this week, sentiment continues to favor pessimism but to a much smaller degree than recent weeks as the bull bear spread narrowed to -5.1 points.  Click here to learn more about Bespoke’s premium stock market research service.

AAII Sentiment Survey

Sentiment Little Changed – Still Bearish

Depending on when a respondent reported their answers to the weekly AAII sentiment survey, they could have been justified in giving either bullish or bearish.  From last Thursday’s close to Tuesday, the S&P 500 rallied a little more than 4% but anyone reporting yesterday would have reflected the index giving back all of those gains in a single session.  Given that back and forth of equities, sentiment remains little changed. Around a quarter of respondents remain in the bullish camp as has now been the case for three weeks in a row. Albeit a historically low reading, it is a major improvement from readings in the mid-teens only one month ago.

AAII Bullish Sentiment

Bearish sentiment meanwhile ticked higher and back above 50% this week.  As with bullish sentiment, that is an overwhelmingly pessimistic reading even if it is less extreme than last month when it closed in on a 60% reading.

Bearish Sentiment

The bull-bear spread in turn was marginally improved rising from -24.7 to -24.4 indicating sentiment stays heavily slated toward pessimism.

Economic Sentiment

With both bearish and bullish sentiment gaining share this week, the percentage of respondents reporting neutral sentiment fell back below 25% to 23.6%. Click here to learn more about Bespoke’s premium stock market research service.

AAII neutral sentiment

Sentiment Just Like Bear Markets

The past week may have seen the S&P 500 and other major US indices breach to fresh lows on steep declines that are nearing bear market territory, but the AAII sentiment survey has not fallen to its own lows as might have been expected.  Bullish sentiment fell back below 25% this week but is still several percentage points above the lows in the teens from only a few weeks prior.

Bullish Sentiment

Historically, when the S&P 500 has hit 52-week lows as it has in the past week, bullish sentiment has usually been even higher with an average reading of 29.15%. The chart below shows the levels of bearish, bullish, and neutral sentiment in the AAII survey at the time the S&P 500 first traded into bear market territory (down 20% from a prior peak) for each bear market since the survey began in 1987. At 24.3% now, the current reading of bullish sentiment is on the low side compared to prior bear markets.  The only two bear markets where bullish sentiment was lower were July 2008 and February 2009.

AAII Sentiment Readings

Although bullish sentiment declined, bearish sentiment also pulled back below 50% for the first time since the week of April 20th.  Even with the decline, though, bearish sentiment remains at a historically high level.

Bearish Sentiment

Given the moves, the bull-bear spread was higher for a second week in a row after it had reached the lowest level since March 2009 two weeks ago. Again, in spite of those improvements, the current level remains in the bottom 5% of all weeks on record.

AAII Sentiment Readings

The year is already a third over, and sentiment has found no respite after multiple months of declines in equity prices.  In fact, bullish sentiment has not seen a single week with a reading above its historical average, and there has only been one such week for bearish sentiment.  In the charts below, we show the average bullish and bearish sentiment reading by year since the start of the survey in 1987. While there’s still a lot of time left for things to change, with an average bullish sentiment reading of just 24.42% at this point in 2022, this year ranks as the worst year for bullish sentiment in the history of the survey (since 1987), although 1988 and 1990 have come close with average readings of around 27%.  Meanwhile, the average reading on bearish sentiment has been 44.3% this year. 2008 is the only other year with a higher average reading at 45%. In other words, it is hard to find a comparable year since the late 1980s where optimism has been this low and pessimism this high. Click here to learn more about Bespoke’s premium stock market research service.

Average Sentiment Readings