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AAII Sentiment Survey Reveals Record-Low Bullishness as Pessimism Takes Hold
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Published in Stocks and Investing on Thursday, November 13th 2025 at 16:38 GMT by Seeking Alpha- 🞛 This publication is a summary or evaluation of another publication
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AAII Sentiment Survey: Pessimism Takes Flight – A Deep Dive into Investor Mood
The American Association of Individual Investors (AAII) has long been a barometer of retail investor sentiment, and its latest survey, released in early March 2024, confirms that pessimism is now the prevailing mood in the market. With a record‑low bullish stance and a corresponding surge in bearishness, the survey offers a sobering snapshot of how individual investors are reacting to the macro‑economic environment, the performance of the equity markets, and the backdrop of geopolitical uncertainty.
1. The Numbers That Tell the Story
The AAII sentiment survey polled 2,000 individual investors on the 10‑day horizon, asking whether they were bullish, bearish, or neutral on the U.S. stock market. The results were:
| Sentiment | % of Respondents |
|---|---|
| Bullish | 10.7% |
| Neutral | 32.5% |
| Bearish | 56.8% |
These figures are the lowest bullish percentage ever recorded since the survey’s inception in 1974. Even the neutral percentage has slipped slightly, while the bearish sentiment has surged by nearly 10 percentage points compared to the previous month. In the 12‑month rolling average, the bearish trend now sits above 55%, a sharp departure from the pre‑pandemic range of 30‑35%.
The survey also includes a monthly “Sentiment Index” that aggregates the percentage of bullish investors. The index has slipped from 32.3% last month to 20.4% this month, a record low for the index. The index’s downward trajectory has been largely driven by the surge in bearish responses, which outpaced any uptick in bullish sentiment.
2. Context: Why the Mood Shift?
The AAII survey is not a mystery. It mirrors, and in many ways amplifies, broader market conditions that investors have been feeling for the past few months. Several key factors contribute to the steep climb in pessimism:
2.1. Equity Market Performance
The S&P 500 has posted a volatile year, swinging from a 10% rally in the first quarter to a 7% decline in the last two months. The rally was largely fueled by a brief easing of inflation expectations and the anticipation of Fed rate cuts. However, the market has since been punished by a surge in Treasury yields, a resurgence of corporate earnings misses, and concerns about a possible slowdown in technology valuations. In particular, the high‑growth tech sector, which had been the backbone of the recent rally, has faced a correction that many investors now see as a broader reflection of market overvaluation.
2.2. Rising Interest Rates and Fed Policy
The Federal Reserve has signaled that it is likely to keep policy rates higher for longer than many had expected. The Fed’s latest minutes, released in February, indicated that the committee is “still in a tightening cycle.” Treasury yields have climbed to 5.2% on the 10‑year note, a level that is exerting downward pressure on equity valuations. The combination of higher discount rates and a slower economic outlook has contributed to a shift toward bearish sentiment.
2.3. Inflation and Supply‑Chain Concerns
Although headline inflation has moderated, core inflation remains elevated at 4.6%. The persistent upward pressure on prices, especially for commodities and energy, continues to undermine consumer confidence. Meanwhile, supply‑chain bottlenecks—particularly in semiconductors—continue to strain earnings prospects for many large manufacturers. The AAII survey notes that 68% of respondents feel that inflation risks are a major concern, a significant jump from 58% in February.
2.4. Geopolitical Tensions
The ongoing tensions between the U.S. and China, coupled with rising concerns about a potential escalation in Eastern Europe, have introduced an additional layer of uncertainty. The AAII survey finds that 55% of respondents say geopolitical risks are a factor in their investment outlook, a level that has remained relatively steady over the past year but has compounded the anxiety around domestic economic prospects.
3. Comparing AAII Sentiment to Institutional Benchmarks
The AAII sentiment data is often cross‑referenced with other market sentiment metrics, such as the University of Michigan Consumer Sentiment Index and the Conference Board’s Consumer Confidence Index. While the University of Michigan’s index has hovered around 72 in March (a modest decline from the previous month), the AAII data is markedly more pessimistic. This divergence underscores a disconnect between institutional and retail investors; while the broader economy may still be in a growth phase, individual investors are reacting more cautiously to the risks presented by the market environment.
Financial analysts also compare the AAII sentiment with the “Fear & Greed Index” published by CNN Money. The Fear & Greed Index has been oscillating between 40 and 45, which indicates a level of fear, but it is not as extreme as the AAII bearish reading. This suggests that the AAII survey may be more sensitive to short‑term investor emotions, especially among retail investors who are less likely to have hedging strategies in place.
4. How the AAII Survey Influences Market Moves
The AAII survey is not just a passive reflection of sentiment—it can actively influence market movements. A decline in bullish sentiment can act as a self‑fulfilling prophecy, driving momentum traders to sell and causing downward pressure on prices. Indeed, the S&P 500 has trended lower in the weeks following the AAII survey’s release, particularly in sectors that rely heavily on growth, such as technology and consumer discretionary.
Historically, a bullish sentiment level below 20% has been associated with a market correction of 5‑10% over the following month. The AAII’s 10.7% bullish rate thus raises a red flag for market participants. In contrast, a bullish level above 30% is often seen as a bullish sign and has historically correlated with a rally. The current scenario, therefore, could presage a period of heightened volatility.
5. Takeaways for Investors
- Reassess Risk Exposure: With a majority of retail investors feeling bearish, it is wise to review risk exposure, especially in sectors that have been most affected by rate hikes and inflation.
- Focus on Fundamentals: The market may be correcting overvalued tech stocks. Look for companies with robust cash flows, manageable debt, and a proven track record of earnings growth.
- Diversify and Hedge: Consider diversifying across asset classes. Incorporate defensive sectors, such as utilities and consumer staples, and look at alternative investments like real‑estate or commodities that may offer a hedge against inflation.
- Monitor Fed Guidance: The Fed’s future actions will be crucial. Pay attention to future minutes and speeches for clues about the tightening cycle’s trajectory.
- Stay Informed on Geopolitics: Geopolitical risks can trigger sudden market swings. Keep abreast of international developments, especially U.S.-China relations and the evolving situation in Eastern Europe.
6. Looking Ahead
The AAII sentiment survey will be released again in April, and analysts will watch closely to see if the bearish trend persists or if a shift toward neutrality or bullishness emerges. Should the market rally again, the sentiment index would likely climb, albeit probably not to pre‑pandemic levels. Conversely, should inflation persist and interest rates remain elevated, the bearish sentiment could deepen further, especially if corporate earnings continue to falter.
For individual investors, the key is to treat the AAII survey as one piece of the puzzle—an early warning system that highlights market sentiment and potential risk. Coupling this information with macro‑economic data, corporate fundamentals, and a disciplined investment strategy will be the most effective way to navigate the turbulence that appears to be ahead.
Read the Full Seeking Alpha Article at:
[ https://seekingalpha.com/article/4843407-aaii-sentiment-survey-pessimism-takes-flight ]
