- Investor sentiment in the stock market has reached its fastest level since November 2021.
- This is according to the bull-bear spread of the weekly AAII investor sentiment survey.
- The survey asks individual investors whether they think the stock market will be higher or lower over the next 6 months.
According to data from the weekly AAII investor sentiment survey, investor sentiment in the stock market has reached its highest level since November 2021.
The survey asks individual investors whether they expect the stock market to be high or low over the next six months. For the week ending February 8, roughly 38% of respondents responded faster, in line with the survey’s historical average.
But what may be more telling is the extreme drop in bearish responses, which fell to 25% for the week ended Feb.
The bull-bear spread rose to 12.5% last week, representing its highest level since November 2021, a month that represented a peak in prices for many speculative corners of the market, including cryptocurrencies.
But investors seem bullish on the idea that the recent rally in the stock market may be more durable than previous bear market rallies seen through 2022. The S&P 500 is up nearly 18% from its mid-October low, while the Nasdaq 100 is up 20% over the same time period.
The relentless selloff in 2022 hit investors hard on a psychological level, as sentiment towards the stocks plummeted to historic lows. Fears of an impending recession, still-high inflation, and future Fed interest rate hikes eroded investor confidence in stocks.
The AAII Investor Sentiment Survey observed that bearish responders outnumbered bullish responders for a record 45 consecutive weeks, and only two of the last 60 weekly results showed bulls dominating bears. The survey started in 1987.
Another investor sentiment indicator, the CNN Fear and Greed Index, signaled “greed” on Thursday with a score of 73. A month ago the indicator was in neutral territory with a score of 48, confirming the recent uptick in investor sentiment.
Some traders view investor sentiment as a contrarian indicator, meaning that when the crowd becomes overly bullish, it may pay to take the other side of the trade. Those contrarian bets become more accurate when bullish or bearish readings reach a peak, and current readings suggest we’re not there yet.
The AAII Investor Sentiment Bull-Bear Spread is currently in neutral territory with a score of 13, and the CNN Fear and Greed Index has been known to remain in “Extreme Greed” territory for an extended period of time. In other words, if the recent rally in share prices extends, there may still be a bearish pool of investors to win.