Ordinary investors are getting excited about stocks.
A recent American Association of Individual Investors (AAII) poll showed bulls outnumbering bears by 30 per cent – the most bullish reading since April 2021.
Long viewed as a dumb money indicator, contrarian investors closely watch AAII polls. However, while sentiment does indeed tend to be apocalyptic near market bottoms, unusually bullish readings are not necessarily cause for concern.
Carson Group strategist Ryan Detrick looked for previous occasions where bullishness exceeded 50 per cent for the first time in at least a year. Six months later, stocks were higher 86 per cent of the time, bagging above-average gains of almost 8 per cent.
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Still, while the AAII reading isn’t a warning signal, it’s worth noting that last September, when stocks were weeks away from bottoming, bears outnumbered bulls by 43 per cent.
No one wanted to buy when stocks were getting cheaper. Today, everyone wants to buy after a 30 per cent rally.
