Individual investors have turned more bearish than at any time since May 2025, according to the American Association of Individual Investors (AAII) weekly survey. Approximately 53% of investors are now bearish on the six-month outlook for stocks, a significant increase of about 14 percentage points from the previous week. This marks the highest level of pessimism since May of last year. Conversely, the percentage of investors who are bullish fell to just under 29%, the lowest level in about a year, declining by about 10 percentage points in one week.
The surge in bearish sentiment is attributed to several factors, including reaccelerating crude oil prices and the 10-year U.S. Treasury yield remaining near 5%. This cautious mood is reflected in the bull-bear spread, which plummeted 23.1 percentage points to minus 24.5% from minus 1.4% a week earlier. This measure is unusually low and has stayed below its historical average of 6.5% for nine consecutive weeks, highlighting the increasing caution among individual investors. Neutral sentiment also decreased by 4.8 percentage points to 17.9%, an unusually low reading compared to its historical average of 31.0%.
Despite the widespread pessimism, some analysts view this as a contrarian opportunity. Keith Lerner, investment chief at Truist Wealth, suggests that heightened bearish sentiment is approaching levels typically associated with market lows. He also notes that market breadth is falling, with the percentage of stocks above their 50-day moving average dropping to 30%, which could indicate an oversold market. Peter Boockvar, investment chief at One Point BFG Wealth Partners, also pointed to CNN's Fear and Greed Index entering "fear" territory as a signal of weakening investor sentiment, but cautions against over-reliance on these indicators, noting that professional investors are more bullish.
From a contrarian perspective, both Boockvar and Lerner suggest that the current extreme bearishness could set the stage for an equity bounce. Lerner specifically states that the upside potential of the lengthy bull market still outweighs the downside risk, and the recent downturn in stocks, particularly in technology, could present an entry point for investors. He advises traders not to let these sentiment readings deter them from buying into the market, suggesting that a deeper pullback could even provide an opportunity to become more aggressive. The AAII survey's voting period through Wednesday evening makes it a fresh read on sentiment after the Federal Reserve meeting, adding weight to its findings.
