Stocktake: Retail investor sentiment nosedives

Ordinary investors are more wary of stocks than at any point in almost 30 years. That’s according to a recent American Association of Individual Investors (AAII) poll, which found just 15.8 per cent of respondents expect US stocks to rise over the next six months.

Ordinary investors have been iffy about stocks for some time – bullish sentiment has been at “unusually low” levels for 12 of the last 15 weeks, according to the AAII.

Still, a reading of 15.8 per cent is extraordinarily low, one of the 10 lowest in the survey’s 35-year history.

AAII polls are viewed as a dumb money indicator, so should contrarians be excited? LPL Research's Ryan Detrick found 31 examples where bullish sentiment was below 20 per cent; six and 12 months later, stocks were higher on all but one occasion, averaging very strong returns.

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However, most of the lowest readings occurred in a handful of years, so the sample size is less impressive than it appears.

Still, the AAII itself notes that unusually bearish readings are generally associated with above-average six- and 12-month returns, suggesting the outlook for equities is not as bleak as retail investors might think.