Investor sentiment hits 32 year low



Investment implications: The AAII sentiment survey is reflecting extreme bearish investor sentiment and as a contra indicator may be suggesting we may soon be approaching a market bottom. This indicator has only been this low 3 times in the past 44 years.  


“AAII is an independent non-profit corporation formed in 1978 to assist individuals in becoming effective managers of their own assets through programs of education, information, and research.

The sentiment survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term; individuals are polled from the AAII Web site on a weekly basis.”

Source: American Association of Individual Investors (AAII)

Date of low point once crossing below 20 3m Total return after low point 1 yr Total return after low point
July 22 1988 -0.04% 28.6%
Oct 24 1990 7.2% 23.3%
May 24 2016 6.2% 17.4%
Apr 29 2022 ? ?

This index has been below 20 only 4 times in its history (1978) and is currently at its lowest point since October 1990. Not surprising given the range of existing risk factors and how poorly both equity and bond markets have done this year and especially in April.

How have markets performed after this index hit such extremely low levels?  Calculated the total return of the S&P 500 index in the following 3 months and 1 year after hitting the low point crossing below 20. In two of three occasions the S&P 500 has been higher in the following 3 months and in all three occasions significantly higher after 1 year.

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