Bearish Sentiment: Investment TrendsHow market pessimism could shape investment trends
5/1/2025 - By Wes Crill, PhD, Senior Client Solutions Director and Vice President (Dimensional Fund Advisors)
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.
Past performance is not a guarantee of future results. Actual returns may be lower.
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