The dearth of investor confidence is one of the more positive
indicators for the market looking into the second half of the year. As
shown in the chart below, the American Association of Individual
Investors (AAII) survey recently showed the lowest level of bullish
sentiment in more than 10 years, and the highest level of neutral
sentiment in more than 13 years.
Following occurrences like this
in the past, the stock market generally had exceptionally strong returns
a year later, with a consistent track record. The combination of
very few bulls and very high neutrals is even rarer. In the post-1987
history of the AAII data, there were only five similar occurrences
historically—all of which were within the 18 months following the crash
of 1987. Here, too, the market was up more than 20% within the following
year.
