The No-Bull Bull Market

The weekly bullish and bearish sentiment readings from the American Association of Individual Investors were released this morning, and they showed an equal amount of bulls and bears at 31.12%.  We've been writing about the lack of optimism from individual investors during this bull market pretty much since it began back in 2009, and our theory has been that after two 50%+ declines for the major indices over the last decade and a half, investors are understandably very suspicious of equities as an asset class.  No matter how high stocks go, any signs of short-term trouble cause sentiment to sour quickly.  At this point it seems like the healing process coming out of the financial crisis could take decades and not months or years. 

To better illustrate the lack of optimism on the part of individual investors over the last few years, below is a chart of the rolling one-year average of the weekly AAII bullish sentiment reading going back to 1988.  Over the last year, the average weekly AAII bullish reading has been 37.95%.  This is about a point lower than the historical average weekly reading of 38.82% over the entire time period.  As you can see in the chart, bullish sentiment has been suppressed throughout this entire bull market going back to 2009, but it has really diverged from the S&P over the last two years.  Since mid-2012, the S&P 500 has been charging higher to new all-time highs, but bullish sentiment has remained very low and refuses to jump higher.