The S&P 500 fought to regain some of its lost ground last week, squeezing its way out of oversold territory at Thursday’s close in the process. As a result, investor sentiment took on a more optimistic tone this week, as the AAII A sentiment survey showed that the percentage of respondents saying they were bullish climbed back above 30% for the first time since the first week of the year. In total, over the past two weeks, bullish sentiment has now increased by 11.2 percentage points. While improved, that still leaves bullish sentiment several percentage points below its historical average of around 38%.
The gains in bullish sentiment borrowed heavily from an extremely high reading in bearish sentiment. Last week, more than half of respondents said they were bearish after a 10.5 percentage point increase week over week. This week, that has dropped to 41.4%. The 12.3 percentage point drop was the biggest drop since October 2019, when it fell 12.91 percentage points to well below 31%. It is also the first time that bearish sentiment has risen by double digits and then fallen by double digits in consecutive weeks since February 2016.
Despite the sharp decline in bearish sentiment, they continue to vastly outnumber the bulls with an 11 point spread between bullish and bearish sentiment. This improved from last week’s reading of -30.3, but remains at the bottom of the recent range.
While the AAII poll results showed improved sentiment, other sentiment polls showed the opposite. The Investors Intelligence survey recorded the lowest reading on bullish sentiment since February 2016 and the NAAIM Exposure Index showed investment managers are fundamentally neutral to the market as the index recorded the reading the lowest since the COVID crash. Combining all of these readings into our Sentiment Composite, the gains at AAII Sentiment over the past two weeks has dragged the composite down from lows, but current levels are still among the most bearish in the past decade. The only lower readings were in spring 2020 and early 2016.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.