Chart of the week

Amid recent market retreat, return expectations plunge.

Have bears taken over the market? This week’s chart looks at the roller-coaster ride for investor sentiment this year.

March 3, 2023 | 2 minute read

Stocks and sentiment

Source: American Association of Individual Investors (AAII) Sentiment Survey, as of March 1, 2023. Bull/bear spread refers to the percentage of bullish investors on the stock market in the near term minus the percentage who are bearish.

  • Traditional markets have been on a roller coaster ride in the first two months of 2023. Following a strong start in January, macro risks reemerged in February, as stocks unwound a good portion of their gains while the Bloomberg Agg is now about flat (0.4%) year to date.1
  • There are a range of potential reasons behind the February slump: Shorter-dated Treasury yields spiked in February as the Fed’s terminal rate continued its gradual rise amid ongoing inflationary pressures; U.S. equity valuations also remain expensive despite the high interest rate environment.
  • Perhaps more notable than the market’s decline over the past month, investor’s forward-looking return expectations also have fallen precipitously. The orange line shows the AAII bull-bear spread, which is a measure of individual investors’ expectations for the stock market in the near term.2
  • As it shows, bullish sentiment notably outnumbered bearish just one month ago but recently retreated to its December 2022 low.2 
  • Of course, markets could turn on a dime again based on the next inflation report or Fed meeting. Yet it seems fair to say the near-term U.S. return outlook faces a daunting set of risks. Against this backdrop, investors may be wise to consider adding return streams to their portfolio with little or no correlations to traditional markets.

  • As of March 2, 2023. Stocks represented by the S&P 500. Bloomberg Agg refer to the Bloomberg U.S. Aggregate Index.

  • AAII Sentiment Survey, as of March 1, 2023. Bull/bear spread refers to the percentage of bullish investors on the stock market in the near term minus the percentage who are bearish.

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