Investor Optimism Drops to One of 60 Lowest Readings in History

Financial professionals work the phones on the floor of the New York Stock Exchange in New York City on Dec. 8, 2009. Chris Hondros/Getty Images

Optimism among stock market investors has dropped to one of the lowest levels, according to a survey by the American Association of Individual Investors (AAII).

The AAII Sentiment Survey showed optimism declining, remaining “unusually low,” according to an Oct. 13 post by AAII. Bullish sentiment for the week is among the 60 lowest readings in the survey’s history. Pessimism rose slightly and “continues to be unusually high.” Bullish sentiment—expectations that stock prices will rise in the next six months—fell by 3.6 percentage points to 20.4 percent. It is below the 38 percent historical average for the 47th straight week.

Meanwhile, bearish sentiment rose 1.2 percentage points to 55.9 percent. It is above the 30.5 percent historical average for the 46th out of the past 47 weeks.

“The bull-bear spread (bullish minus bearish sentiment) is –35.6 percent and is unusually low for the 32nd time in 38 weeks. This week’s reading ranks among the most negative in the survey’s history. The breakpoint between typical and unusually low readings is currently –11.0 percent,” the post said.

According to AAII, “unusually low” readings of bullish sentiment and bull-bear spread have been followed by the S&P 500 realizing above-average and above-median returns in the following six to 12-month periods.

The decline in investor optimism comes as consumer and business outlooks about the economy remain negative.

The latest survey by the National Federation of Independent Business (NFIB) found that the proportion of owners expecting business conditions to improve in the next six months fell by two points to a net negative 44 percent.

A consumer survey by the University of Michigan found people’s expectations of year-ahead inflation rose in September while their expectations of the economy dipped.

Market Forecast

The S&P 500 has fallen by close to 25 percent year-to-date while the Dow is down by over 18 percent. The most recent week saw the Dow shed over 400 points while the S&P 500 fell by 2.37 percent to 3,583.07. Inflation remains a top concern in the minds of investors.

“As inflation remains elevated for longer and the Fed hikes further, the risk increases that the cumulative effect of policy tightening pushes the U.S. economy into recession, undermining the outlook for corporate earnings,” UBS global wealth management chief investment officer Mark Haefele said in a note, according to CNBC.

Last month, Goldman Sachs lowered its S&P 500 year-end target for the fourth time this year to 3,600, which is 29 percent below the 5,100 level it had forecast back in February.

Analysts at Morgan Stanley are expecting the S&P 500 to fall to 3,400 by the end of the year. But in case the U.S. economy slips into a recession, the index is projected to fall up to 3,000.