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

Recent data from the American Association of Individual Investors (AAII) reveals that investor sentiment has turned notably bearish, with a record high of 60.6%. This dip in confidence coincided with the S&P 500 experiencing its worst day of 2025 and the second-worst trading day in March on a Monday.

Understanding the Situation

Ryan Detrick, the chief market strategist at Carson Research, commented on the AAII’s report, noting that the bearish sentiment rose above 60% for the week ending February 26. This statistic ranks as the seventh highest in the history of the AAII survey, which began in 1987.

This reading represents the highest level of bearish sentiment observed in the last 30 months, having last peaked in September 2022, and is the third highest recorded over the past decade, as pointed out by LPL Financial.

A Potential Buying Opportunity

Detrick also indicated that historical trends suggest this level of bearishness may present a buying opportunity for investors. He noted that, historically, when bearish sentiment exceeded 60%, stocks have typically risen by an average of 28% in the subsequent year.

Furthermore, when looking at all instances where bearish sentiment went over 55% in the AAII survey, the results show consistently strong performance in the market over the following year. However, he did point out some exceptions, particularly highlighting the spike in fear during early 2008, which foreshadowed poor returns a year later.

"If we are not on the brink of another financial crisis (which we believe isn’t the case), historical data has been quite bullish for investors who maintain their resolve and avoid the temptation to panic sell. Usually, the S&P 500 has shown a median gain of around 13% six months later and 18% after a year," Detrick stressed.

Market Sentiment Overview

The AAII survey indicates that only 19.4% of investors are currently bullish, while 20% of respondents maintain a neutral stance towards the market. This level of bullish sentiment is reported to be anomalously low, staying below the historical average of 37.5% for seven out of the past nine weeks.

In contrast to the AAII’s bearish outlook, participants in a recent BofA survey showed cautious optimism, as observed by George Smith, a portfolio strategist at LPL Financial.

"Given the AAII Sentiment Indicator’s bullish-bearish spread, alongside the conflicting perceptions about a global recession and U.S. equity valuations as reflected in the BofA survey, the general consensus on market outlook seems relatively neutral," Smith noted.

Market Reactions

This decline in sentiment and rising pessimism has corresponded with a downturn in the markets. The SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust ETF (QQQ), which track the S&P 500 index and the Nasdaq 100 index respectively, both fell significantly on Monday. The SPY went down by 1.75%, closing at $583.77, while the QQQ dropped by 2.19%, finishing the day at $497.05 according to data from Benzinga Pro.

sentiment, market, investors