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The recent stock market rally has investors feeling the most optimistic they've been since the end of 2021.
That's according to the latest American Association of Individual Investors sentiment survey, a weekly poll that offers insight into how individual investors think stocks will do over the next six months.
What the survey says
- Bullish sentiment, which refers to investors' expectations that stock prices will increase over the next half a year, rose 7.6 percentage points to 37.5% — its highest level since Dec. 30, 2021. This is the first time in 58 weeks bullish sentiment has been at or above the historical average of 37.5%.
- Meanwhile, bearish sentiment, which refers to expectations that stock prices will decrease over the next six months, fell 9.6 percentage points to 25% — its lowest level since Nov. 11, 2021.
- Expectations that stock prices will stay nearly unchanged over the same time period rose two percentage points to 37.5%.
- Despite some investors becoming more optimistic, in aggregate, they still only slightly fall above "fearful" on the survey's scale of greedy to to neutral to fearful.
Why investors are optimistic
- The survey identifies the rebound in stock prices, "along with less aggressive monetary policy" on the part of the Federal Reserve are probably behind the improved level of optimism. Still, it noted "concerns about the economy, inflation and corporate earnings remain."
- After a rough 2022 for stocks, and despite struggling this week, the S&P 500 — a benchmark widely use to measure how the U.S. stock market is doing overall — was up around 7% for the year as of Thursday's close.
Keep in mind
- "The Sentiment Survey is a contrarian indicator," according to the association. "Above-average market returns have often followed unusually low levels of optimism, while below-average market returns have often followed unusually high levels of optimism."
- Experts have been warning that the current stock market rally may not last and that, if it does, we're still likely to experience turbulence.
- When navigating volatile financial markets, financial advisors tend to advise sticking to your investment strategy and not trying to time the market — no matter how confident you're feeling.