Bearish Sentiment Hits 7-Week High, Echoing 1990 Market Bottom

The latest American Association of Individual Investors (AAII) survey reveals a persistent bearish sentiment, with 58.9% of individual investors expressing pessimism about the stock market's short-term outlook. This marks the seventh consecutive week that bearish sentiment has exceeded 50%, matching a 35-year-old record set in October 1990, which coincided with the bottom of that bear market. The historical average of bearish sentiments stood at 31%, which was nearly half of the current pessimism among the participants of the AAII survey.



The current bearish sentiment is notable for its duration and intensity. According to the latest American Association of Individual Investors (AAII) survey, bearish sentiment stood at 58.9% this week, marking the seventh straight week with over 50% of investors expressing pessimism. This streak matches a 35-year-old record set in October 1990, which was also the bottom of that bear market. As Subu Trade noted, "The last time bearish sentiment was above 50% for seven straight weeks was in October 1990, which was also the bottom of that bear market."

Historically, the October 1990 bear market was characterized by a prolonged period of high bearish sentiment, similar to what we are seeing today. This period of pessimism often precedes market recovery, as investors' negative outlook can create a contrarian indicator. For instance, the S&P 500 returned an average of 22% in the 12 months following incidents where bearish sentiment topped 50%. This historical data suggests that the current market conditions, with bearish sentiment at 58.9%, could potentially signal a turning point for the market.

The current market recovery is also influenced by recent economic events. For example, President Donald Trump announced a pause on tariffs on Wednesday, citing the negotiation attempts by nearly 75 countries without any retaliation as the reason for the pause. This pause on tariffs could signal a potential turnaround from the current bearish sentiment, as it could lead to a decrease in economic uncertainty and an increase in investor confidence.

The market rebounded on Wednesday as the Nasdaq 100 climbed out of bear market territory, although it remained 13.85% below its prior peak of 22,222.61 points. The S&P 500 was still in a correction, sitting 11.23% lower than its record high of 6,147.43 points, while the Dow Jones was 9.91% down from its 52-week high of 45,073.63 points. This rebound in the stock market could signal a potential turnaround from the current bearish sentiment, as it could lead to an increase in investor confidence and a decrease in economic uncertainty.

In summary, the current bearish sentiment, which has persisted for seven consecutive weeks, is comparable to the historical bear market in October 1990 in terms of its duration and intensity. Both periods were characterized by high levels of investor pessimism, which often precedes market recovery. The current market recovery is also influenced by recent economic events, such as the pause on tariffs, which has contributed to a change in market sentiment.