Investors Approaching Extreme Bullishness

George Smith | Portfolio Strategist

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Last week, the American Association of Individual Investors (AAII) released their weekly sentiment survey data, which showed that individual investors have experienced a large amount of holiday cheer due to the stock market rally in December. The percentage of individual investors who are bullish about short-term market expectations rose to around 53%, while the percentage of investors who are bearish is 21%. This puts the spread between the bulls and the bears at 32% versus a long-term average of around 2%.

Investors have become their most bullish since April 2021, according to the AAII survey. The weekly reading is the seventh highest in the past 10 years, largely due to the recent stock market rally, expectations of interest rate stability, and lower inflation data.

The bull-bear spread at 32%, is the 11th highest weekly reading in the last 10 years and has jumped 58% from minus 26% only six weeks ago. This increase is extreme at almost +3 standard deviations above the average six-week move, and it is the seventh-highest six-week jump since the survey started in 1988. While the bull-bear spread itself is high compared to recent history, it is not extreme — yet. 

As illustrated in the chart below, investor sentiment, as measured by the spread between bulls and bears in the AAII survey data, is approaching, but not yet at, extreme bullishness, as defined by being more than two standard deviations above the long-term average. The last time this statistic reached the extreme bullishness threshold was in April 2021. 

Individual Investors Approaching Extreme Bullishness

Bull-Bear Spread Has Jumped 58 Points in Six Weeks

Line graph depicting individual investors' bull-bear spread from January 2020 to December 2023, jumping 58 points in six weeks as noted in paragraphs above.

Source: LPL Research, AAII, Bloomberg, 12/22/23
Disclosures: All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.

We generally consider investor sentiment from a contrarian perspective, so the fact that this indicator is near bullish extremes has tended to be a detractor for stock price returns. Historically, when the bull-bear spread has been at comparable levels (between one and two standard deviations above average), S&P 500 returns have been slightly below average (but still positive). Where the data gets more concerning for stock market investors is when sentiment gets to extreme bullishness, above two standard deviations from the mean, as this has historically led to negative returns both six months and a year out. 

Bullish Investor Sentiment Tends to Precede Slightly Below-Average (but Positive) Returns

Average S&P 500 Returns

AAII Bull-Bear Spread

Percent of the Time

3 Month Average Returns

6 Month Average Returns

1 Year Average Return

Very Bearish: Below 2 standard deviations (Below -31)





Bearish: -1 to -2 standard deviations (-31 to -14)





Average +/- 1 standard deviation (-14 to +18)





Bullish: +1 to + 2 standard deviations (+18 to +34)





Very Bullish: Above 2 standard deviations (Above 34)





All periods July 24, 1987 to December 22, 2023





Source: LPL Research, Bloomberg, AAII as of 12/22/23
Disclosures: AAII Bull-Bear spread brackets based on 10-year rolling average and one or two standard deviations above/below.
All indexes are unmanaged and cannot be invested into directly.
Past performance is no guarantee of future results.


After the recent run up in stocks, there are now many investors who head into 2024 in a bullish mood. This stretched sentiment supports our thesis that stocks will likely be up in 2024, but returns may be somewhat muted. We still expect a mild recession to occur, which may usher in some interest rate decreases from the Federal Reserve to offset some of the economic and market impact. We maintain a neutral allocation to equities and are overweight fixed income (as valuations are still attractive relative to equities amid higher yields), funded from cash (where the return profiles of short-term products are attractive, but reinvestment risk remains). 

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George Smith

George Smith chairs the Tactical Model Portfolio Committee, which manages LPL Financial’s multi-asset models across multiple managed account platforms.