Bearish sentiment among retail investors hits new milestone amid tariff worries

Investing.com -- The just-released American Association of Individual Investors (AAII) Sentiment Survey revealed a rise in pessimism among individual investors regarding the short-term outlook for stocks, while both optimism and neutral sentiment experienced declines. Bearish sentiment, reflecting expectations that stock prices will fall in the next six months, increased to 59.2%, marking an unusually high level above the historical average of 31.0%. This is the first time bearish sentiment has surpassed 57% for three consecutive weeks in the survey’s history.

The survey results come with the S&P 500 entering correction territory, with a drop of more than 10%, as recession fears mounted on tariff worries. U.S President Donald Trump has recently initiated a trade war with close trading partners Canada and Mexico, increased tariffs on China, and traded new barbs with Europe ahead of his April 2nd reciprocal tariffs.

Bullish sentiment, which indicates investor expectations for stock prices to rise over the next six months, saw a slight decrease of 0.2 percentage points, settling at 19.1%. This level of optimism is not only below the historical average of 37.5% but is also the first instance of bullish sentiment being under 20% for three straight weeks since September 22, 2022, when it was recorded at 17.7%.

Neutral sentiment, the belief that stock prices will remain relatively unchanged, also fell by 1.9 percentage points to 21.7%. This figure is below its historical average of 31.5% and has been considered unusually low for 34 out of the past 36 weeks.

The bull-bear spread, which is calculated by subtracting bearish sentiment from bullish sentiment, dropped 2.3 percentage points to –40.1%. This spread is significantly below its historical average of 6.5% and has been that way for the 10th time in the past 12 weeks.

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The weekly special question asked AAII members whether they believed other investors were too bullish or bearish at the moment. The responses were mixed, with 31.9% stating that others are too bearish, 34.7% feeling that the sentiment toward the market is about right, and 23.9% suggesting that investors are too bullish. Additionally, 9.0% of respondents expressed no opinion or were unsure.

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