Longest Bearish Streak In Retail Investor Sentiment Since 1987

Despite the recent rebound in the S&P 500 Index, which is up almost 45% from the March lows and just shy of 5% off of all-time highs, retail investor sentiment hasn’t rebounded like it has in the past.

This American Association of Individual Investors (AAII) retail investor sentiment survey asks individual investors to answer the question: “I feel that the direction of the stock market over the next 6 months will be,” to which they can select “bullish” or “bearish” or “neutral” as a response.

The AAII survey has shown more bears than bulls for the past 23 weeks, the longest streak on record since it began in 1987 [Figure 1].

Because this particular measure of retail investor sentiment typically follows recent market returns, it has tended to be a contrarian indicator. In other words, retail investors tend to be bullish after a strong run in stocks, and bearish after a recent sell-off. The fact that investor sentiment remains so negative tells us that the current equity market remains a hated one. 

Are retail investors under positioned?

Assuming people put their money where their mouth is, or invest based on their outlook, investors today are likely under positioned. That means continued equity strength could follow if negative retail sentiment shifts more positively. But with the state of the virus in the U.S., that may be a tall order until some type of pharmacological remedy is found.

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