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INVESTOR OPTIMISM TAKES A HIT AS INFLATION WORRIES LINGER - AAII

Individual investors turned noticeably more cautious this week, according to the latest American Association of Individual Investors (AAII) Sentiment Survey. Optimism about the stock market's six-month outlook fell sharply, while both neutral and bearish views gained ground.

The survey also suggests inflation remains a concern. Nearly three-quarters of respondents expect inflation in the second half of the year to be the same as, or higher than, levels seen during the first half.

Bullish sentiment — the share of investors expecting stock prices to rise over the next six months — dropped 15.3 percentage points to 29.6%. That's well below the historical average of 37.5% and marks the third time in the last four weeks that optimism has come in under its long-term norm.

Meanwhile, neutral sentiment rose 5.8 percentage points to 28.1%. Even with the increase, it remains below its historical average of 31.5% for 105 of the past 107 weeks.

While the biggest move was the drop in bullish sentiment, bearish sentiment also jumped. The percentage of investors expecting stocks to fall over the next six months climbed 9.5 percentage points to 42.3%, an "unusually high" reading according to AAII. That's comfortably above its long-term average of 31.0% and extends a streak of elevated pessimism to 24 straight weeks.

The change in mood was especially clear in the bull-bear spread, a widely watched gauge that measures the difference between bullish and bearish sentiment. The spread swung to an "unusually low" reading of -12.0% from +12.8% a week earlier, a nearly 25-point collapse that pushed it well below its historical average of 6.5%.

In short, investors appear to be growing more cautious about the stock market's outlook, while persistent inflation concerns continue to weigh on sentiment.

AAII's graphic below breaks down investor expectations for inflation in the second half of 2026 compared with the first half, based on the latest survey.

(Terence Gabriel)

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