Investor pessimism meets market
resilience heading into 2026

Key takeaways:

• Investor sentiment has been negative and positioning cautious throughout 2025, even as stocks and fundamentals point to strength.
• The gap between sentiment and returns suggests markets could have more room to run into year-end.

11/19/2025 – Financial markets appear ready to close the year on a strong note. Stock indices hover near record highs, bonds have held steady, and corporate earnings continue to surprise to the upside. Yet, despite these tailwinds, investor sentiment has remained stubbornly negative for much of 2025—a disconnect that advisors may need to address with clients.

Some market bears argue that the recent rally is fueled by speculative bets and an AI-driven hype cycle. While there’s a kernel of truth to that view, we see a different story: today’s negative sentiment doesn’t square with the strong fundamentals underpinning this market—a point advisors may want to emphasize in client conversations.

Consider Q3: earnings growth for S&P 500® Index companies is on pace for a fourth straight quarter of double-digit gains—hardly a sign of irrational exuberance. Yet investor positioning remains cautious, a sharp contrast to the unchecked optimism that usually precedes true market bubbles. For advisors, that disconnect may be an opportunity to reinforce the strength of underlying fundamentals with clients.

Since the April 8 lows, sentiment has stayed gloomy—even as the S&P 500 rallied. That gap between emotions and returns is striking. The AAII survey, which tracks bullish, bearish, and neutral outlooks, has leaned pessimistic all year, with bearish sentiment averaging about 11%. For advisors, this caution may be an opportunity to remind clients that fundamentals—not fear—are driving performance.

A bearish outlook in the double digits for a full calendar year is rare—seen only three times in recent history: 1990, 2008, and 2022. Each coincided with a bear market. Today’s backdrop looks very different. This disconnect between negative sentiment and positive returns may be a contrarian signal, suggesting stocks could have more room to run into year-end.

Rather than anchoring decisions to sentiment, advisors can help clients focus on what matters: strong corporate fundamentals, resilient cyclical leadership, productivity tailwinds, and a solid economic backdrop. Structuring portfolios around long-term objectives remains the most reliable path to resilience in an uncertain, volatile market.