Investor sentiment can broadly be divided into survey-based measures, which reflect stated opinions from various investor groups, and market-based measures, which infer sentiment from actual trading activity. Although market-based indicators are often favored for capturing real capital flows, they suffer from limited historical depth. Survey-based data, particularly Investors’ Intelligence, offers a significant advantage in this regard, with a dataset extending back more than 50 years.
The most recent survey highlights a continued contraction in the bull-bear spread, as optimism declines and pessimism rises. Over the past seven weeks, the spread has fallen dramatically to -43.5%, representing the largest decline since the Covid crash and a reading that has occurred in fewer than 1% of observations since 1971. Historically, such extreme pessimism has coincided with reflex rallies: the S&P 500 has generated annualized gains near 30% when the spread falls below -43%, underscoring its contrarian implications.
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