Bullish Sentiment Surges Among Retail Investors After Fed Cuts Rates

Individual investors have experienced a significant increase in optimism regarding the stock market following the Federal Reserve’s recent rate cut, as indicated by the latest AAII Sentiment Survey.

The survey shows a marked rise in bullish sentiment, with expectations for rising stock prices over the next six months increasing to 50.8%, an 11.0 percentage point jump. This rise in optimism is noteworthy, as it is described as “unusually high” and has surpassed the historical average of 37.5% for the 45th time in 46 weeks.

In contrast, neutral sentiment—expectations that stock prices will remain largely unchanged—declined by 6.5 percentage points to 22.8%. This represents the 11th consecutive week that neutral sentiment has fallen below its historical average of 31.5%.

Bearish sentiment, which indicates expectations of declining stock prices, also saw a decrease of 4.5 percentage points, reaching 26.4%. This figure is below the historical average of 31.0% for the fifth time in six weeks.

The bull-bear spread, which reflects the difference between bullish and bearish sentiment, has surged to 24.4%, marking a 15.6 percentage point increase. This statistic is significantly above the historical average of 6.5% for the 19th time in 20 weeks, highlighting a strong divergence in investor outlooks.

When asked about the primary factors influencing their stock outlook, 34.9% of respondents identified the economy and inflation as the most impactful. Following closely was monetary policy and interest rates, mentioned by 28.4% of participants. Valuations and corporate earnings were less significant, receiving 14.8% and 13.3% of responses, respectively.

Overall, this survey highlights a clear shift in sentiment among individual investors, largely driven by recent changes in monetary policy and economic expectations.