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INVESTOR SENTIMENT BRIGHTENS, THOUGH BEARS REMAIN ELEVATED - AAII

Investor sentiment just got a bit less gloomy.

In the latest American Association of Individual Investors (AAII) Sentiment Survey, pessimism about the near-term outlook for U.S. stocks dropped noticeably. At the same time, both bullish and neutral views gained ground — a sign that attitudes may be starting to shift, even if caution still lingers.

Looking at where investors see opportunities over the next six months, small caps are getting a slight edge compared with other market segments.

Breaking it down: the share of investors who expect stocks to fall over the next six months — the bearish camp — fell 8.3 percentage points to 39.4%. That’s a meaningful drop, but bearish sentiment remains elevated, having stayed above its long-term average of 31.0% for 19 straight weeks.

On the flip side, optimism is ticking higher. Bullish sentiment rose 6.2 percentage points to 36.6%. Even so, it remains just below its historical norm of 37.5%, marking the fifth consecutive week below average.

Meanwhile, those expecting a flat market — the neutral group — increased 2.1 percentage points to 24.1%. That is still well below the long-term average of 31.5%. Neutral sentiment has now been below that benchmark in 100 of the past 102 weeks.

Put it all together, and the bull-bear spread — a key gauge of overall sentiment — improved quite a bit. It climbed to -2.8% from -17.3% last week. It’s still negative, but it marks a clear move toward balance. Even so, the spread remains below its historical average of 6.5% for the 18th time in the past 19 weeks.

In short: less outright fear, a bit more optimism creeping in, but investors still do not appear ready to fully embrace the upside.

In this week’s special question, AAII asked its members which market-capitalization style of stocks they expect to outperform over the next six months.

Here is AAII’s graphic showing how they responded.

(Terence Gabriel)

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