The American Association of Individual Investor's Sentiment Survey release for the week ending 9/23/2020 showed bullish investor sentiment fell 7.1 percentage points to 24.9%. The decline in bullish sentiment largely showed up in the 5.6 percentage point increase in bearish sentiment. When all is said and done, the bull/bear spread widened to minus 21.1 percentage points from the previous week's spread of minus 8.4 percentage points. As the below chart shows, since January bullish sentiment has been on the decline and does remain at a level lower level.

Although individual investors are expressing a low of bullishness for stocks, their response to the amount of investment dollars allocated to stocks is 65%, just above the long term average. Given the low level of bullishness, one would expect a lower level of exposure to stocks at this point in time. This does not seem to be the case though.

Since sentiment measures are contrarian ones, the low level of  bullish sentiment would generally be bullish for stock returns in the coming six months or so. However, it seems investor actions are not matching the survey responses around sentiment. One factor influencing investor asset allocation decisions at the moment might be the low level of interest rates. Investors may have a preference of a lower equity weighting, but what is the alternative to owning stocks: cash that earns virtually zero in interest and/or bonds that are trading at historically low yields? At the end of the day, it is important investors recognize the sentiment measures seem to be providing conflicting signals in the current market market environment.