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Stock Optimism Among Retail Crowd Surges Before Rally Stalls

2023-07-21 02:18
Just before US stocks faltered on Thursday, the level of optimism among retail traders soared to the highest
Stock Optimism Among Retail Crowd Surges Before Rally Stalls

Just before US stocks faltered on Thursday, the level of optimism among retail traders soared to the highest level in 27 months, when the market was notching all-time highs.

The closely watched bull-bear spread from the American Association of Individual Investors survey was positive for a seventh straight week, rising to 29.9 in the week ending July 19. That’s the most bullish stance since April 2021, and a jump from a 15.1 reading in the prior period.

The day trader crowd has piled into big tech and benchmark exchange-traded funds in recent weeks, data compiled by Vanda Securities show, pushing more than $7.2 billion into the equity market over the past five sessions. The percentage of investors in the AAII survey with a bearish view over the next six months slumped to 21.5%, the lowest since June 2021, while those with a neutral view dipped to the lowest level this year.

The S&P 500 dropped 0.4% at 2:06 p.m. on Thursday, halting a three-day rally that put the benchmark gauge above a level that’s considered overbought by some technical analysts.

Retail traders net bought $3.9 billion of cash equities in the past week, with the vast majority of inflow into single stocks targeting megacap tech, according to data compiled by JPMorgan Chase & Co.’s Peng Cheng. For any investors wondering whether the rush of retail bullishness is overdone, Cheng’s team estimates that their return this year is in-line with the broader market so, “retail positioning does not appear to be stretched.”

The booming optimism in the AAII survey follows a push higher in stocks this month, with the S&P 500 adding 2.6% in July. Overall, the majority of respondents were bullish on the outlook for the first time since April 2022.

  • AAII bull-bear spread rose to 29.9 from 15.1 last week
  • Bulls jump to 51.4% from 41%
  • Neutrals fall to 27.1% from 33.1%
  • Bears drop to 21.5% from 25.9%
  • See AAIIBULL GP, AAIIBEAR GP, AAIINEUT GP, .AAIIBB GP

(Adds trading to fourth paragraph, updates chart)