The American Association of Individual Investors (AAII) conducts weekly sentiment surveys. Participants are asked a single question: Do you feel the direction of the stock market over the next six months will be up (bullish), no change (neutral), or down (bearish)? The results are published every Thursday.
Bearish sentiment has topped 50% in 11 consecutive weeks as of May 8. The stock market has never inspired such peristent pessimism at any point since the AAII began conducting surveys in 1987. The previous record was a seven-week stint during the bear market of 1990. There were also five-week stints during the Great Recession in 2008 and bear market of 2022.
That puts the stock market in uncharted territory. But history offers a clue about what happens next: The S&P 500 (^GSPC 0.41%) has typically rocketed higher in the year following bearish sentiment readings above 50%. Here are the important details.
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History says the stock market is headed much higher by early 2026
The American Association of Individual Investors (AAII) started collecting market sentiment data in July 1987. Bearish sentiment has since topped 50% in only 96 of 1,971 weekly surveys, which is less than 5% of the time.
Importantly, 11 of those 96 readings have come this year. That sounds alarming, but sentiment is considered a contrarian indicator because the stock market has historically performed well after periods of heightened pessimism. Put differently, investors frequently become too gloomy in response to negative news.
Here's the median return in the S&P 500 over the six-month and 12-month periods following bearish sentiment readings above 50%:
- Median six-month return: 7%.
- Median 12-month return: 16%.
Here's what that data implies about the present situation: The S&P 500 closed at 5,862 on February 27, which was the publication date of the first AAII survey in 2025 to show bearish sentiment above 50%. The S&P 500 will climb 16% to 6,799 by next February if its performance matches the historical median. That implies about 15% upside from its current level of 5,887 as of May 13.
Tariffs still pose a potential threat to the stock market
The stock market has been hammered by economic uncertainty created by President Trump's trade agenda. The AAII survey recorded its first bearish sentiment reading above 50% in late February after his administration announced stiff tariffs on goods from China, Canada, and Mexico, as well as duties on aluminum, steel, and auto imports.
Bearish sentiment stayed above 50% throughout March and April as President Trump took a more aggressive stance on trade and other countries took retaliatory action. The most surprising development was the slate of "Liberation Day" tariffs the administration unveiled in early April, which included a 10% baseline tax and higher country-specific duties. The president also raised the total tariff on Chinese imports to 145%.
Importantly, Trump has walked back several on those tariffs. The country-specific duties were paused for 90 days in early April, and tariffs on Chinese imports were temporarily lowered to about 35% (for 90 days) in early May. Yet, bearish sentiment has remained above 50% because the constant back-and-forth has unsettled investors nearly as much as the tariffs themselves.
While stocks have undoubtedly benefited from Trump softening his stance on trade policy in recent weeks, investors should bear in mind the average tax on U.S. is still at its highest level since 1941, according to the nonprofit Tax Foundation. Most economists think those tariffs will raise prices and slow economic growth, potentially to the point of recession.
Here's the bottom line: Investors have been persistently pessimistic since late February. Bearish sentiment has exceeded 50% in 11 straight weeks for the first time in history. On one hand, high levels of pessimism are often followed by strong returns in the S&P 500. On the other hand, tariffs still pose a potential threat to the stock market. Investors need to reconcile those opposing views when making decisions.
