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The Tell: Investor pessimism declines but remains elevated, AAII survey shows

Individual investors get just a little bit less pessimistic, a weekly survey finds. Read More...

Individual investors are getting just a little bit less pessimistic, a weekly survey finds.

The American Association of Individual Investors sentiment survey for the week ending Sept. 5 found 39.5% bearish against 28.6% bullish, compared with 42.2% bearish and 26.1% bearish for the prior week.

The AAII report tracks individual investor sentiment going back to 1987.

Some analysts regard the high level of bearishness on Wall Street as a contraindicator— meaning that high degrees of optimism or pessimism tend to result in returns for stock benchmarks going in the opposite direction of sentiment.

T.J. Hayes of Hedge Fund Tips said the results show the market has moved above the “extreme fear” levels but still suggests that there is a “long runway of opportunity before euphoria starts to take hold.”

The bearishness comes at a time when bond flows are at a six-year high, implying that investors are running toward the perceived safety of assets like the 10-year Treasury note and gold futures.

Hayes said that most managers in his generation are waiting for the next shoe to drop, as has been the case during the blowup of the tech bubble and then the financial crisis.

He suggested that if the next economic recession is milder than expected, and if the millennials drive a recovery on household formation in the way that the baby boomers did, there may be upside to come.

“Maybe the biggest risk is not waiting for the next shoe to drop, but forgetting to put your running shoes on,” he writes.

The alternative of course is that individual investors are getting ahead of a slowdown if not outright recession.

Related: Why one big bank sees a drop in the stock market

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