US stocks are approaching historic highs, but retail investors are becoming more and more pessimistic! The survey showed that the bearish ratio rose to 53.3%, and there was a marked increase in cash allocation

The Zhitong Finance App learned that the latest weekly survey released by the American Association of Individual Investors (AAII) on Friday showed that against the backdrop of oil prices remaining high and the Federal Reserve raising interest rates for the first time since 2023, investor bearish sentiment has risen to the strongest level since 2025. Notably, in stark contrast to the continued cooling of investor sentiment, the S&P 500 index is currently only about 2% from its all-time high.

According to the latest survey, 53.3% of investors surveyed expect the future trend of the stock market to be weak, with a bearish ratio of more than half; the share of bullish investors fell to 28.8%, the lowest level in a year. Based on this calculation, the long and short sentiment gap in the AAII survey widened further. The bearish ratio was 24.5 percentage points higher than the bullish ratio, which is the most pessimistic level since May 2025.

Charles Rotblut, vice president of AAII, said that this level is an “abnormally low”. Not only did it hit the lowest level since May 2025, but it has also been below the historical average of 6.5% for nine consecutive weeks.

The S&P 500 is only about 2% from its all-time high, yet investor sentiment falls to a low of more than a year

Investor sentiment has clearly weakened this time, just as the US financial market has experienced a round of fluctuations since the end of the summer. On the one hand, oil prices remain high, increasing market concerns about inflationary pressure; on the other hand, the Federal Reserve raised interest rates for the first time since 2023 this week, further strengthening investors' expectations that the high interest rate environment may continue.

Under the influence of multiple factors, individual investors in the US have clearly become more cautious. However, judging from the stock market itself, there is a clear divergence between market performance and investor sentiment. After a period of fluctuation since late summer, the S&P 500 is still only about 2% from its all-time high.

In other words, there has been no sharp retracement in US stocks, but the bearish ratio in the AAII survey has broken through 50%, and the gap in long/short sentiment fell to its lowest level since May 2025. This combination of “the index is close to historical highs and investor sentiment is highly pessimistic” has also brought the latest AAII data to market attention.

More than half of investors raised their cash allocations by nearly 20% saying it was “far above normal”

In addition to sentiment indicators, investors' actual asset allocations also show defensive tendencies. According to the latest AAII survey, more than half of the respondents currently hold a higher than normal percentage of cash. Among them, 19.1% of investors said their cash allocation was already “far above normal.”

A rise in cash positions usually means that investors are reducing their exposure to risky assets or temporarily holding funds for a more suitable opportunity to enter the market. Combined with the bearish ratio rising to 53.3%, the survey showed that individual investors not only tend to be emotionally cautious, but also increased their defensiveness in terms of asset allocation.

However, the AAII Investor Sentiment Survey is not only an indicator of market optimism or pessimism; some traders also use it as a reverse indicator.

Generally speaking, excessive optimism may mean investors tend to be complacent, while extremely low sentiment readings mean that market fears and caution are concentrated. Therefore, when bearish sentiment reaches abnormally high levels, some investors will pay attention to whether the market has absorbed quite a bit of negative expectations.

In this survey, the bearish ratio was 24.5 percentage points higher than the bullish ratio, far below the historical average of 6.5 percentage points ahead of the bullish ratio, while the S&P 500 index is still only about 2% from its all-time high, highlighting the clear divergence between stock market performance and investor sentiment.