Stock Market Soars, Investors are Confident but Cautious
Founded in 1978, the American Association of Individual Investors (AAII) is a Chicago-based company that provides research, education and insight for individual investors. Its weekly Sentiment Survey tracks the pulse of short-term optimism on the U.S. stock market in the individual investor community. The goal is to provide a forward-looking perspective by asking their thoughts on the stock market over the next six months.
In the latest survey, 43.2% of investors state they are “bullish” – a Wall Street term that denotes optimism. This means investors believe the stock market will continue to rise over the next six months. This is above the survey’s historical average of 37.5%.
Conversely, 27.2% of investors are “bearish” and believe the stock market will decline over the next six months, a near four-month high. This is up markedly from the 21.9% reported just last week. Meanwhile, 29.6% of respondents stated they were “neutral” – that the stock market would remain relatively unchanged over the next six months.
If you’ve always wondered about Wall Street’s fascination with bulls and bears and their frame of reference, here’s an easy hint. Bulls charge forward (a rising stock market) and bears lay down to hibernate (a declining stock market).
The latest Sentiment Survey indicates that, overall, investors are still optimistic on the short-term outlook of the U.S. stock market. However, the rising “bearish” outlook indicates a growing concern that stock prices over the past 16 months might have risen a bit too high, too fast.
The survey also reflects the rollercoaster-type ride investors have experienced over the past few years. In 2022, concerns over high inflation and rising interest rates sent the major stock market indexes into decline. That year, the tech-heavy NASDAQ fell the most, declining by 33.1%. The broad-based S&P 500 fell 19.4% while the Dow Jones Industrial Average (DJIA) fell 8.8%. By December 2022, the AAII reported investor bullish sentiment had cratered to just 20.3%. Bearish sentiment, however, soared to 52.3%.
But 2023 provided a much-needed boost to investors. Last year, the NASDAQ soared 43.4%, the S&P 500 gained 24.2% while the DJIA rose 13.7%. So far in 2024, all three stock market indexes have continued their upward rise and currently stand at all-time record highs.
Whether the ongoing rise in the stock market continues or not is unknown. That’s the realm of crystal balls. Based on the latest Sentiment Survey, many investors think it will. But that optimism is increasingly being tempered by a dose of caution. The economy is still facing high inflation and high interest rates. This is a potent combination that can potentially throw a wrench into the growth of the economy and the U.S. stock market.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
