Investor sentiment is definitely something we think is important to monitor. But because of the week-to-week noise that is associated with some of these polls, it’s not anything we’re going to make portfolio-altering decisions from it too often. But when bulls or bears hit certain extremes that are seen less frequently, it stands out to us.
Today I wanted to point to the fact that right now nearly 3 out of every 4 investors are expecting stocks to rally over the next 6 months. This according to the latest survey of individual investors from AAII. The chart below comes from Sentiment Trader and shows the last several times that the Bull ratio was above 70%:
We’ve seen bulls hit extremes like this in the past. A lot of times the market consolidates either through price or time in the short-term. But historically these particular levels of optimism haven’t necessarily been a negative signal over the long-term. I thought that was interesting.