S&P 500 Selloff Triggers Investor Pessimism: Bearish Sentiment Reaches 30-Month High

Investor pessimism has surged, with bearish sentiment climbing to a notable high of 60.6%, as measured by the American Association of Individual Investors (AAII). This spike in negativity coincided with the S&P 500’s significant decline, marking its worst trading day of 2025 and the second-worst day in March on a recent Monday.

Market Overview: Ryan Detrick, the chief market strategist at Carson Research, emphasized in his latest communication that the bearish sentiment surged past 60% for the week ending February 26. This statistic ranks as the seventh highest since the poll's inception in 1987.

Notably, this 60.6% bearish reading stands as the highest level observed in 30 months, dating back to September 2022. Additionally, it represents the third-highest number documented in the past decade, as noted by analysts at LPL Financial.

Detrick analyzed historical patterns and hinted at potential buying opportunities for those looking to invest. According to his findings, stocks have historically risen by about 28% on average in the year following periods when bearish sentiment reached levels above 60%.

When examining all instances where bearish sentiment exceeded 55% in AAII surveys, he noted strong subsequent returns for investors. However, he also warned of exceptions, specifically referencing the spike in fear during early 2008, which led to poor returns a year later.

"Assuming we aren't facing another financial crisis (a situation we don’t anticipate), previous instances of similar negative sentiment were generally bullish for investors willing to remain confident and avoid panic selling. The S&P 500 experienced a median gain of nearly 13% six months later and 18% after one year," he remarked.

Current Investor Sentiment: According to the survey data, only 19.4% of investors expressed a bullish outlook, while 20% reported a neutral sentiment regarding the market. The AAII noted that this level of bullish sentiment is unusually low and has dropped below the historical average of 37.5% for the seventh time in nine weeks.

In contrast to the bearish outlook indicated by the AAII Sentiment Indicator, a different survey conducted by BofA revealed a more cautious optimism among respondents. Portfolio strategist George Smith from LPL Financial commented on this divergence, stating, "Given the AAII Sentiment Indicator's current bearish bull-bear spread and the varied opinions from the BofA survey concerning the probability of a global recession and valuations of U.S. equities, the overall market consensus appears neutral at this time."

Market Performance: The recent selloff affected key market indexes, with both the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust ETF (QQQ) losing value on Monday. The SPY experienced a decline of 1.75%, closing at $583.77, while the QQQ fell by 2.19% to a value of $497.05, based on data provided by Benzinga Pro.

Looking Ahead:

• Is the S&P 500 Correction Overdue? Analysts Discuss Potential Market Tumbles and Stress the Importance of Balance and Diversification.

Photo credit: Shutterstock

Market News and Data brought to viewers by Benzinga APIs

investor, sentiment, stocks