A crude fourth quarter for the stock market is exacting a substantial price on investor psychology, particularly for the mom and pop crowd.
Pessimism in the midst retail investors is at the worst level in about 5½ years, according to the latest American Association of Individual Investors appraise. The 48.9 percent of those who think the S&P 500 will be negative in six months is up 18.4 percentage points from final week’s reading and is the highest since April 11, 2013.
The drop came just before the market turned a mild upswing in an way nasty period.
Worries about rising interest rates, a testy trade showdown between the U.S. and China, and second thoughts about slowing growth both domestically and abroad have hit Wall Street hard since early October. The S&P 500 is off more than 9 percent in the domicile, while the Dow Jones Industrial Average has fallen about 7.2 percent and the Nasdaq is off some 11.6 percent.
The stream in pessimism has come with a corresponding slide in bullishness. Optimism tumbled 17 percentage points during the week, disappointing collapse to 20.9 percent and representing the worst level since May 25, 2016. Neutral sentiment edged down 1.3 proportion points to 30.2 percent, just below its historical average of 31 percent.
Those hoping the market leanings around actually can take some solace from the AAII numbers. Such sentiment indicators are contrarian in disposition, particularly at extremes, and this survey is no different.
In fact, the last time the bears were this plentiful presaged a keen turn higher. The S&P 500 rallied 16 percent from the April 11 low through the end of 2013.
Investor behavior has descended more defensive lately, with money flowing out of equity funds and cash allocations among AAII respondents gaining a 33-month high in November.
In this week’s survey, investors remained generally upbeat about the economy, with 25 percent pregnant a continued expansion in 2019 though at a slower pace. Just 13 percent see a recession in the year ahead.