Investor pessimism hits 13-year highs

The Federal Reserve has raised rates aggressively due to persistently high inflation, leading investors to become increasingly bearish on stocks. According to bank analysts and the American Association of Individual Investors (AAII), investor pessimism has reached levels not seen since the financial crisis in 2008.

As indicated in AAII's latest sentiment survey, 60.9 percent of individual investors are "bearish" about stocks in the next six months. As recently as March 2009, when 70.3 percent of investors were pessimistic, the AAII investor pessimism gauge was higher.

Investor sentiment "unquestionably" is the worst since the financial crisis, according to Bank of America analysts in a recent note.

According to AAII, bullish sentiment dropped for the forty-fourth consecutive week, remaining below its historical average of 38 percent. This is among the 20 lowest readings of the survey's history, based on the organizations bullish sentiment measure, which has fallen by 8.4 percentage points to 17.7 percent.

The S&P 500 has historically shown above-average and above-median returns after unusually high bearish sentiment readings, according to AAII, which suggests the stock market could rally soon.

26 September 2022