The recent falls have spooked retail investors, judging by the latest American Association of Individual Investors (AAII) poll. Just 21.9 per cent are bullish while over 50 per cent are bearish.

Both readings reflect bearish extremes, with the bull-bear spread at rarely seen levels. But last week’s reading isn’t as extreme as that seen at mid-June’s market bottom, when bearishness hit levels unseen since the global financial crisis in March 2009.

The AAII survey is a contrarian indicator; excessively bullish readings are associated with below-average returns, while extremely bearish readings are associated with above-average returns. Mid-June’s survey signalled sentiment had become too pessimistic, setting the scene for the fierce rally that followed. Does that mean another rally may be afoot?

Not necessarily. While contrarians will be cheered by the deterioration in sentiment, note that sentiment was similarly bearish in May, and that stocks didn’t bottom then. They kept sliding, not bottoming until sentiment hit apocalyptic levels in mid-June. Stocks may be higher in 12 months’ time, but the near-term outlook remains murky. As investors have already seen in 2022, bearish sentiment can become even more bearish.