Bearish Sentiment Peaks as S&P 500 Experiences Significant Selloff

The latest data from the American Association of Individual Investors (AAII) reveals a concerning trend in investor sentiment, with bearish feelings climbing to 60.6%. This spike in pessimism coincided with the S&P 500's most challenging day of 2025, registering as the second-worst trading day in March.

Market Overview: According to Ryan Detrick, chief market strategist at Carson Research, the bearish sentiment increased over 60% for the week ending February 26. This level of negativity marks one of the highest since the AAII began collecting such data in 1987, being the seventh most significant instance historically.

Notably, this 60.6% bearish reading represents the highest sentiment seen in 30 months, effectively making it the third highest in the past decade, as the analysts at LPL Financial pointed out.

Detrick’s analysis of historical trends indicates that such levels of bearish sentiment often present potential buying opportunities for investors. He noted that stocks have historically gained about 28% on average in the year after periods where bearish sentiment exceeded 60%.

When considering all cases where the AAII survey reflected bearish sentiment above 55%, the findings show strong returns a year later. However, Detrick warned that there are exceptions to this trend; citing the fear surge of early 2008, which resulted in poor returns a year after.

"Unless we are heading towards another financial crisis, which we do not anticipate, past instances of high bearish sentiment have been bullish for those investors who maintain their positions and resist panic selling. Historically, the S&P 500 has seen a median increase of nearly 13% six months afterward and up to 18% over a year," Detrick stated.

Understanding the Current Sentiment: The AAII sentiment survey indicates a mere 19.4% of investors currently feel bullish, while 20% maintain a neutral outlook. This data reflects an unusually low bullish sentiment, falling below the historical average of 37.5% for the seventh time in the past nine weeks.

In contrast to the AAII's bearish sentiment, a recent Bank of America survey highlighted a more optimistic perspective among some respondents, according to George Smith, portfolio strategist at LPL Financial. He pointed out that the disparate views on the likelihood of a global recession and the valuation of U.S. equities suggest a more neutral consensus regarding market outlook.

Market Performance: Following the negative market sentiment, both the Invesco QQQ Trust ETF (QQQ) and the SPDR S&P 500 ETF Trust (SPY), which track the S&P 500 and Nasdaq 100 indices, saw declines on Monday. The SPY decreased by 1.75%, trading at $583.77, while the QQQ dropped by 2.19%, ending at $497.05, based on data from Benzinga Pro.

Looking Ahead: Despite the current pessimistic sentiment, experts advise investors to resist the urge to panic sell. Understanding the historical context of market sentiment can provide valuable insights for those navigating these tumultuous conditions.

investors, sentiment, S&P500