As monetary markets cooled off in February, investor sentiment spiked downwards close to a historic low. Nonetheless, previous bearishness has usually amplified returns sooner or later.
What Occurred: The AAII Investor Sentiment Survey discovered traders notably bearish within the week ending Feb. 26.
Of the traders surveyed, 19.4% had a bullish outlook on the financial system, 20% have been impartial and 60.6% have been bearish. This marks the very best degree of bearish sentiment this yr, properly above the historic common of 31%, and solely briefly exceeded in September 2022.
Poor sentiment is probably going tied to sticky inflation, potential tariffs from the Trump Administration and a pullback within the synthetic intelligence trade.
Why it Issues: In response to LPL Monetary, markets regularly overperform following durations of maximum bearishness.
“…traditionally, when the bull-bear unfold has been at comparable ranges of greater than two normal deviations under the typical (which has occurred solely 4.1% of the time going again to July 1987), S&P 500 returns have been above common,” a report from LPL’s George Smith mentioned.
Following “extraordinarily bearish” sentiment spreads, the SPDR S&P 500 ETF Belief SPY has traditionally returned over 10% inside a yr, greater than the typical return throughout bullish markets.
LPL Monetary additionally famous the Financial institution of America International Fund Supervisor Survey, which painted a rosier image of sentiment on Wall Avenue. Survey respondents are cautiously optimistic, with 82% believing a worldwide recession is unlikely within the subsequent yr.
Yr-to-date, the S&P 500 is roughly even, following a powerful yr for the index in 2024. The tech-focused NASDAQ QQQ has fared worse, shedding 1.78% of its worth in 2025.
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Picture created utilizing synthetic intelligence through Midjourney.
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