Investor sentiment in the U.S. equity market is undergoing a dramatic shift, raising the question: is the bull trade becoming too crowded?
According to the latest AAII (American Association of Individual Investors) survey released on May 15, 2025, 35.9% of individual investors now express a bullish view on the stock market for the next six months. This marks the highest level of bullish sentiment since the final week of January 2025. The surge is particularly noteworthy as it comes after a prolonged period of investor pessimism.
Zooming in on recent momentum, the bullish sentiment has spiked by 15.0 percentage points over just the past two weeks. As shown in the chart, this two-week increase is the second-largest since November 2023, indicating a sharp reversal in investor mood. This surge is highlighted in the lower panel of the chart, where growth in bullish sentiment (period-on-period) touched +15, one of the highest spikes in the past five years.
Simultaneously, bearish sentiment has plummeted. The proportion of retail investors who are bearish has fallen by 15 percentage points to 44.4% — its lowest level since mid-February 2025. This drop ends a historic streak: for 11 consecutive weeks prior, bearish sentiment had remained above 50%, marking the longest such streak on record.
The white line in the upper chart panel shows how bullish sentiment readings had been subdued throughout early 2025, before abruptly climbing toward the current 35.9% level. Meanwhile, the recent red-boxed jump reflects the rapid change in sentiment — both in absolute bullish readings and in their growth rate.
While a rise in bullish sentiment can signal improving investor confidence and optimism, it also raises caution. Historically, sudden spikes in optimism — especially when mirrored by sharp drops in bearishness — can precede periods of consolidation or even market pullbacks, as overly crowded bullish positions leave the market vulnerable to negative surprises.
In conclusion, while the latest sentiment shift indicates growing confidence among individual investors, it also calls for vigilance. As bullish sentiment heats up and contrarian indicators begin to flash, investors may want to assess whether the trade is becoming too one-sided.
Disclaimer:
The information provided in this article is for informational purposes only and does not constitute investment advice. Always conduct your own research or consult with a financial advisor before making any investment decisions. Market sentiment indicators are not guarantees of future performance.
