Stunning to watch the precipitous decline in the closely tracked American Association of Individual Investors (AAII) Investor Sentiment Survey. The February 26 print of 19.4% marks a significant downward move from the prior week (29.2%), suggesting a give-up in investor confidence is underway.

The poll looks to capture 6 mo forward stockmarket expectations and historically averages ~ 37.5% bullish. Mid July 2024 marked the most recent bullish sentiment peak (52.7%). The chart highlights that sentiment rarely spends much time < 20%.

Interesting that the sentiment funk follows a bottoming in the VIX (volatility) measure, a spike in stock correlations and a widening in the spread between UST10 notes and HY notes.

Investors should note the indicator is best viewed through a contrarian lens (ie straw hats in winter) with a lowly print indicating a retreat in confidence, more conducive holder positioning and pointing to a potential buy set-up. This proved to be the case in July 2020 and September 2021 but of course this is no guarantee that a low in stocks is in fact in place.

(chart: Bloomberg).