AAII Sentiment Survey: Neutral Sentiment Surges as Market Pulls Back

The latest AAII Sentiment Survey provides critical insight into the evolving psychology of individual investors during a period of market consolidation. The survey data, published on February 5, 2026, captures a pivotal moment where retail investor sentiment is undergoing significant recalibration in response to emerging market headwinds [1].

The most notable development in this week’s survey is the substantial 6.5 percentage point surge in neutral sentiment, which now stands at 31.3%—essentially matching the historical average of 31.5% [2]. This shift represents the largest single-week change in recent months and indicates that a significant portion of previously bullish investors have adopted a “wait-and-see” approach. The simultaneous 4.7 percentage point decline in bullish sentiment (from 44.4% to 39.7%) and the 1.8 percentage point drop in bearish sentiment (from 30.8% to 29.0%) reveal that investors are predominantly moving from optimism toward neutrality rather than shifting toward pessimism [1].

When examining the three-week trend, the transformation becomes even more pronounced. Bullish sentiment has declined approximately 9.8 percentage points over the past two weeks, while neutral sentiment has risen by roughly 9.0 percentage points [2]. This pattern suggests a systematic rotation from confident bullish positioning toward uncertainty, a development that warrants close monitoring given its historical implications for market volatility.

The sentiment shift aligns with measurable market weakness across major indices. The S&P 500 has declined approximately 2.8% from its recent peak of 7,002.00 reached on January 28, 2026, trading at 6,808.40 as of February 5 [0]. The NASDAQ Composite has shown even greater vulnerability, declining approximately 5.9% from its January 28 high of 23,988.27 to current levels around 22,582.94 [0]. The Russell 2000 small-cap index demonstrated particular weakness, declining 0.92% on February 5 alone, suggesting that market participants may be rotating away from economically sensitive segments [0].

The market has experienced three consecutive down sessions from February 3-5, with elevated trading volumes indicating active repositioning by investors [0]. This confluence of declining prices, increasing volume, and shifting sentiment creates a composite picture of a market in transition—one where conviction is eroding and uncertainty is ascending.

Against long-term historical averages, the current sentiment profile presents a nuanced picture. Bullish sentiment at 39.7% remains 2.2 percentage points above its historical average of 37.5%, indicating that underlying optimism has not been fully extinguished despite the recent decline [2]. Neutral sentiment at 31.3% is essentially at equilibrium with its historical mean of 31.5%, suggesting this week’s surge has merely normalized rather than created an extreme reading [2]. Bearish sentiment at 29.0% sits 2.0 percentage points below its historical average of 31.0%, representing the lowest bearish level in several months according to the AAII survey report [1].

The bull-bear spread—calculated as the difference between bullish and bearish sentiment—has compressed significantly from 13.6% the prior week to 10.7% currently [1][2]. This compression reflects diminishing net optimism among individual investors and historically precedes periods of increased market volatility when such spreads narrow rapidly.

The current sentiment configuration presents classic contrarian warning indicators that merit careful attention. The sub-30% bearish reading, while not at extreme lows, represents a notable contraction in pessimism that historically correlates with elevated downside risk [1]. Individual investors have historically proven more resilient in their bullish convictions than warranted during periods when bearish sentiment remains suppressed, creating conditions where markets become vulnerable to pullbacks despite apparently favorable sentiment readings.

The sharp rise in neutral sentiment carries particular significance as a leading indicator. When investors increasingly adopt a neutral stance, it typically signals a pause in conviction-driven positioning that often precedes a directional move—either toward renewed optimism or toward increased bearishness [1]. The AAII survey notes that investors are specifically awaiting clearer signals from upcoming earnings reports and Federal Reserve policy communications before committing to new positions [1].

The underperformance of small-cap indices, particularly the Russell 2000’s 0.92% decline on February 5, suggests potential structural concerns beyond simple consolidation [0]. Small-cap stocks historically serve as leading indicators for economic health, and weakness in this segment may signal underlying concerns about the durability of economic expansion that are not yet reflected in large-cap index prices.

The compression of the bull-bear spread from +21.3% approximately three weeks ago to the current +10.7% represents a remarkable erosion of net bullish conviction [2]. While the spread remains positive—indicating more investors remain bullish than bearish—the rapidity of this compression suggests that market participants are reassessing risk-reward dynamics in real-time.

Several critical factors remain insufficiently resolved to provide definitive directional clarity. Upcoming corporate earnings reports will serve as a crucial test of equity valuations, with investor neutrality potentially shifting toward one polarity depending on the balance of positive versus negative surprises [1]. Federal Reserve interest rate trajectory continues to influence investor calculations, with any dovish or hawkish shifts in policy communications capable of rapidly altering sentiment dynamics [1].

The absence of decisive economic data releases in the immediate period—particularly regarding inflation, employment, and GDP growth—contributes to the neutral stance adopted by many survey respondents [1]. This information gap creates conditions where sentiment may remain fluid until fundamental catalysts emerge to provide clearer direction.

The AAII survey data reveals several risk dimensions that warrant attention from market participants. First, the historical pattern of low bearish sentiment preceding market pullbacks presents a structural concern—the current 29.0% bearish reading, while not extreme, remains below historical norms and correlates with elevated downside risk in forward periods [1][2]. Second, the elevated neutral sentiment reading above 30% historically signals potential for increased volatility, suggesting that markets may experience heightened price swings as uncertainty resolves [1].

Third, the rapid compression of the bull-bear spread from +21.3% to +10.7% over approximately three weeks indicates weakening conviction that could precede either a stabilization period or a more significant correction [2]. Fourth, small-cap weakness observed in Russell 2000 trading may signal broader risk aversion that has not yet fully manifested in large-cap indices [0]. Fifth, the upcoming earnings season introduces uncertainty that could rapidly shift sentiment in either direction depending on corporate results and guidance [1].

Despite elevated risks, the current sentiment configuration also presents considerations for opportunistic positioning. The normalization of neutral sentiment toward its historical average suggests that extreme positioning—both bullish and bearish—has moderated, potentially creating conditions for more rational price discovery. The fact that bullish sentiment remains above average despite the recent decline indicates underlying optimism persists, which could provide support for markets if positive catalysts emerge.

The current pullback has created more attractive entry points for long-term investors compared to recent peaks, with the S&P 500 approximately 2.8% below its recent highs [0]. Additionally, the elevated trading volume during the recent down sessions suggests active participation that could provide liquidity for disciplined investors maintaining longer-term perspectives.

The analysis reveals several risk factors that warrant attention without implying specific investment recommendations. Market conditions suggest elevated volatility risk due to the sharp rotation toward neutral sentiment observed in the AAII survey. The technical indicators from recent market action—including declining prices across major indices, elevated volume during down sessions, and small-cap weakness—collectively suggest a period of consolidation or potential correction. Investors should be aware of these concerns while maintaining awareness that sentiment readings represent one input among many factors in market analysis.

The February 5, 2026 AAII Sentiment Survey documents a significant shift in individual investor psychology characterized by declining bullish conviction and rising neutral sentiment. The S&P 500 has declined approximately 2.8% from recent peaks while the NASDAQ has pulled back roughly 5.9%, with small-cap indices demonstrating particular vulnerability [0]. Bullish sentiment at 39.7% remains above its historical average of 37.5%, while bearish sentiment at 29.0% sits below its historical mean of 31.0%—a configuration that historically correlates with caution regarding near-term upside potential [2].

The 6.5 percentage point surge in neutral sentiment to 31.3% represents the most notable development, signaling that investors are adopting a wait-and-see approach pending clearer signals from earnings reports and Federal Reserve policy communications [1]. The bull-bear spread compression from 13.6% to 10.7% over one week indicates rapidly weakening net bullish conviction that may precede increased volatility.

Key factors requiring ongoing monitoring include upcoming corporate earnings results, Federal Reserve interest rate communications, economic data releases, and the extent to which small-cap weakness persists or spreads to larger-cap indices. The current sentiment profile reflects a market in transition where underlying optimism remains but uncertainty has substantially increased.