
Bearish Sentiment
By Wes Crill, PhD, Dimensional Senior Client Solutions Director and Vice President
Many investors seem to be pessimistic about the direction of the market. If history is any indicator though, that’s a bad time to get out of stocks.
The American Association of Individual Investors polls its 125,000-plus members weekly on their expectations for the stock market over the next six months. The proportion expecting the market to fall is used to form a “bearish” sentiment indicator. As of February 13, the trailing eight-week average bearish percentage was about 37.7%—above the historical average of 31.0% since September 1987 and the highest since November 16, 2023.
Investors should be careful how much trust they put into these glass-half-empty views. Bearish response levels above the historical mean were followed by an average six-month US market return of 6.2%. That’s close to the average return of 5.9% following below-average bearish levels. Overall, there’s little discernable relation between the sentiment indicator and subsequent returns.
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.