The sharp and still-ongoing stock-market selloff is taking a toll on investor psyche.
Sentiment took a sharp turn for the worse in the latest week, according to the American Association of Individual Investors, with bullishness tumbling by its highest amount in almost a year as Wall Street has sold off broadly. The Dow Jones Industrial Average DJIA, -1.15% has shed more than 1,300 points in the past two trading days alone, including Thursday, and on Wednesday both the Dow and the S&P 500 SPX, -1.11% suffered their biggest one-day percentage drops since February. The Nasdaq Composite Index COMP, -0.29% had its worst day since 2016 on Wednesday.
Much of the weakness has been driven by rapidly climbing bond yields, which fueled fears that profit margins of U.S. corporations may be squeezed by higher labor costs and loftier borrowing expenses.
Learn more: Why the stock market just ushered in its worst start to a quarter in about 2 years
According to the AAII survey, just 30.6% of individual investors describe themselves as bulls, meaning they expect prices to be higher in six months. That represents a whopping decline of 15.1 percentage points compared to last week’s survey, the largest one-week decline in investor bullishness in nearly a year. Historically, 38.5% of investors describe themselves as bullish.
Bearishness is also on the rise among individual investors, with 35.5% of investors claiming a negative outlook for stocks over the next six months—an increase of 10.3% over the previous week that took it above its long-term average of 30.5%. The souring of sentiment comes amid rising stock market volatility and a poor start for stocks in the fourth quarter of 2018.
Read: The volatility in stocks is historic—but also shouldn’t have been unexpected
Nearly 34% of investors described themselves as neutral on the market, up 4.7 percentage points and above the long-term average of 31%.
While falling optimism can be a contrary buy signal for markets—high levels of bullishness can represent complacency or euphoria about markets—the recent weakness in markets has had investors increasingly concerned that the record levels hit in September could represent a top for the economic cycle.
