Investor pessimism rising but may not be bearish enough



By Chuck Mikolajczak

NEW YORK (Reuters) – Pessimism about the performance of stock prices over the next six months jumped in the latest American Association of Individual Investors (AAII) Sentiment Survey, but may not have hit levels needed to lend some optimism for a longer-term rebound.

In the latest survey, bearish sentiment, defined as expectations stocks will fall over the next six months, spiked 10.5 percentage points to 39.1%, its highest reading since Oct. 9, 2019.

At the same time, bullish sentiment, or expectations stocks will rise over the next six months, tumbled 10.1 percentage points to 30.4%, its lowest level since Oct. 9, 2019 and below the historical average of 38%.

(GRAPHIC: AAII survey – https://fingfx.thomsonreuters.com/gfx/mkt/13/2665/2630/Pasted%20Image.jpg)

Excessive bearishness relative to bullishness can be a signal that the market could be be oversold and is poised to move higher.

AAII attributed the bearish sentiment jump to the drop in equities to start the week on news of the spread of the coronavirus.

As a result of this sharp shift in sentiment, the spread between bulls and bears dropped to a negative 8.70 from the positive 11.89 in the prior week.

While the spread is now negative and at its lowest level in almost five months, it may need to slide further into negative territory in order to be a contrarian indicator. Extremely bearish sentiment has often resulted in gains for the S&P 500 () a year later.

(GRAPHIC: Enough pessimism yet? – https://fingfx.thomsonreuters.com/gfx/buzzifr/15/7992/7992/AAII202282020.png)

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