Investor bearishness jumps, CEOs confidence also lower

Growing concerns about the US economy which have reignited talk of recession – and this week’s market volatility - are weighing on sentiment of retail investors in equities.

Data from the American Association of Individual Investors reveals a jump in bearishness this week, narrowing the gap with the bulls that still lead the weekly survey of sentiment regarding the short-term outlook for the stock market.

The bullish score – expectation that stock prices will be higher in six months - dropped 4.3 points this week to 40.5% but remains above its historical average of 37.5% for the 39^th time in 40 weeks. The bearishness score – expectation of lower stock prices - was up 12.3 points to 37.5% and is above its historical score of 31% for the second time in nine weeks.  Those individual investors expressing neutral sentiment dipped 7.9 points to 22%.

The bull-bear spread (bullish minus bearish sentiment) decreased 16.6 percentage points to 3.1%. The bull-bear spread is below its historical average of 6.5% for the first time in 14 weeks.

The AAII survey also asked investors whether they felt that the Fed was right to leave interest rates unchanged, amid growing pressure for a cut in September. Almost half of respondents (48.5%) said it was the right decision, 33.8% felt rates should have been cut, 8.9% think rates should have been raised, and 8.4% were not sure or had no opinion.

CEO CONFIDENCE

Meanwhile, The Conference Board’s latest Measure of CEO Confidence has declined to its lowest reading so far in 2024.

The reading of 52 for Q3, 2024, still indicates slightly more positive responses from business leaders about current conditions but was down two points from the previous quarter with 26% of respondents saying that economic conditions were worse than six months ago, up from 16% in Q2. Only 20% of CEOs said economic conditions were better, down from 30% last quarter.

The survey was conducted between July 15 and 29 with 130 CEOs taking part. The share of CEOs who expect economic conditions to improve over the next six months was up from 30% in Q2 to 32% in Q3, while 25% expected conditions to worsen, down from 26%.

"Negative views about current economic conditions outweighed positive views of the economy, with more CEOs saying that conditions have worsened compared to six months ago than saying they improved,” said Roger W. Ferguson, Jr., Vice Chairman of The Business Council and Chair Emeritus of The Conference Board. “Their views about current conditions in their own industries also deteriorated. CEOs' views about the economy going forward were little changed, but still positive on net. The balance of opinions on future conditions in own industries was also stable and moderately positive. Regarding top risks to their own industries, CEOs continue to rank cyber risks first, followed by geopolitical instability, and legal and regulatory uncertainty."