President Donald Trump has long viewed persistent trade deficits as harmful to the U.S. economy, an assertion that many economists dispute. Nevertheless, Trump made tough trade policy a focal point of his presidential campaign. "Tariffs are the greatest thing ever invented," he said at a Michigan town hall meeting last year.
Yet Wall Street has still been stunned by the scope and severity of the tariffs President Trump has imposed since returning to the White House in January. The average tax on U.S. imports is currently 28%, the highest level in more than 100 years, and that number could increase once the 90-day pause on "reciprocal" tariffs expires.
The radical change in trade policy caused the stock market to tank. The S&P 500 (^GSPC +1.02%) declined 12% over a period of five trading days in early April. While the benchmark index has recovered slightly, it remains 11% below the record high it hit in February.
Meanwhile, investors have become increasingly pessimistic as Wall Street has downwardly revised earnings estimates and economic growth forecasts. Weekly surveys from the American Association of Individual Investors show that bearish sentiment has topped 50% in nine straight week. That's never happened before.
Image source: Official White House photo by Andrea Hanks.
Bearish sentiment has been unusually persistent under President Trump
The American Association of Individual Investors (AAII) started conducting weekly market sentiment surveys in 1987. The nonprofit group asks participants a single question: Do you feel the direction of the stock market during the next six months will be up (bullish), no change (neutral), or down (bearish)?
Bearish sentiment measured 60.6% in the week that ended Feb. 27 as investors processed a whirlwind of announcements from President Trump, including tariffs on China, Canada, and Mexico. Bearish sentiment has stayed above 50% since then, as shown below, with the Trump administration imposing increasingly severe tariffs.
- Feb. 27: 60.6%
- March 6: 57.1%
- March 13: 59.2%
- March 20: 58.1%
- March 27: 52.2%
- April 3: 61.9%
- April 10: 58.9%
- April 17: 56.9%
- April 24: 55.6%
Never before has bearish sentiment exceeded 50% in nine straight weeks since the AAII started surveying investors in 1987. That means President Trump has made stock market history. Investors have been more persistently pessimistic under the Trump administration than at any other time in the last 37 years, including the dot-com crash and the financial crisis.
Importantly, President Trump also set another dubious stock market record. The S&P 500 declined 10.3% during his first 94 days in office. The benchmark index has never performed so poorly during the first 94 days of any presidential term in history, according to The Wall Street Journal.
SNPINDEX: ^GSPC
Key Data Points
The stock market tends to perform well following heightened levels of bearish sentiment
There is some good news for investors. The AAII sentiment survey is viewed as a contrarian indicator because the stock market typically performs well following periods of heightened pessimism. That's because investors often overreact to bad news. Since 1987, the S&P 500 has returned a median of 16% over the 12-month period following bearish sentiment readings above 50%.
Investors have another reason to be cautiously optimistic: Wall Street analysts generally anticipate a stock market rebound in the remaining months of 2025. The median year-end forecast for the S&P 500 is 6,100 across 17 investment banks and research organizations. That implies 12% upside from its current level of 5,445.
Of course, the standard disclaimer applies: Never lean too heavily on forecasts from Wall Street because no one can predict the future and historical trends are never a guarantee of future results. However, patient investors should feel good about putting money into high-conviction stocks at a measured pace today.
