Since 1987, the American Association of Individual Investors (AAII) has measured market sentiment with weekly surveys. Investors answer a simple question: Do you feel the stock market over the next six months will be up (bullish), no change (neutral), or down (bearish)? The survey runs from Thursday to Wednesday, and results are published on Thursday morning.
As of March 20, bearish sentiment has exceeded 50% in four consecutive weeks. That level of pessimism in any given week is relatively uncommon, but it is very rare for investors to be so negative in four consecutive weeks. In fact, only twice since 2009 has bearish sentiment exceeded 50% in four straight surveys.
Importantly, the AAII investor sentiment survey is commonly seen as a contrarian indicator, meaning the stock market tends to perform very well following periods of elevated bearish sentiment. Indeed, history says the S&P 500 (^GSPC +0.26%) could advance 23% in the next year. Here are the important details.
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History says the S&P 500 could advance 23% in the next year
Since January 2009, the American Association of Individual Investors (AAII) has collected results from 846 weekly surveys. The latest results were published on March 20, 2025. Bearish sentiment measured 58.1%, meaning most survey participants expect the stock market to go down in the next six months.
Importantly, during the 846 weekly surveys since January 2009, bearish sentiment has topped 50% on just 39 occasions, or less than 5% of the time. A handful of measurements over 50% came during the tail end of the Great Recession in 2009. Several came in the early days of the Covid-19 pandemic in 2020. And nearly half were recorded as inflation soared in 2022.
As mentioned, the AAII survey is considered a contrarian indicator, meaning extreme bearish sentiment often precedes upward movement in the stock market. The S&P 500, commonly seen as the best gauge for the overall U.S. stock market, has returned an average of 25% during the 12-month period following weeks when bearish sentiment topped 50%.
Past performance is never a guarantee of future results, but we can apply that data to the current situation to make an educated guess about the coming year. The S&P 500 closed at 5,663 on March 20, 2025 (the publication date of the most recent weekly survey). The index will advance 25% to 7,079 in the next year if its performance aligns with the historical average. That implies 23% upside from its current level of 5,750.
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Key Data Points
Tariffs have dragged stock market sentiment lower in recent weeks
Bearish sentiment has soared in recent weeks as the Trump administration has imposed tariffs on goods imported from several countries. The situation may get worse in the coming weeks because the president plans to impose reciprocal tariffs -- meaning the U.S. will tax foreign imports at the same rate as other countries tax U.S. exports -- on April 2.
David Kelly, chief global strategist at JPMorgan Chase, recently provided this explanation for why U.S. trade policy is weighing on the stock market. "The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions."
However, Kelly also said tariffs may do no harm if they are used as a temporary negotiating tool to open international markets to U.S. imports. Wall Street evidently sees that as the most probable outcome. The average year-end target for the S&P 500 is 6,551 among analysts at 17 investment banks and research firms. That consensus implies 14% upside from the current level of 5,750 by the end of 2025.
Here is the bottom line: No one knows what the stock market will do in the next year. But the S&P 500 is currently down 6% from its high, and the technology-heavy Nasdaq Composite is currently 10% off its high. Both indexes have recovered from every past drawdown, and there is no reason to think this one will be different. That means the present is a buying opportunity for patient investors regardless of which way stocks move in the coming months.
