Investor sentiment just flipped to its most bullish level since November 2021 as the stock market rally powers forward

• Investor sentiment in the stock market has jumped to its most bullish level since November 2021.
• That's according to the Bull-Bear spread of the weekly AAII Investor Sentiment Survey.
• The survey asks individual investors whether they think the stock market will be higher or lower in the next 6 months.

Investor sentiment in the stock market just surged to its highest level since November 2021, according to data from the weekly AAII Investor Sentiment Survey.

The survey asks individual investors whether they expect the stock market to be higher or lower in the next six months. For the week ending February 8, about 38% of respondents gave a bullish response, in line with the survey's historical average.

But what might be more telling is the extreme drop in bearish responses, which fell to 25% over the past week compared to about 35% for the week ending February 1.

The bull-bear spread rose to 12.5 last week, representing its highest level since November 2021, a month that represented the peak in prices for many speculative corners of the market, including cryptocurrencies.

But investors appear to be warming up to the idea that the recent stock market surge could be more sustainable than the previous bear market rallies seen throughout 2022. The S&P 500 is up about 18% from its mid-October low, while the Nasdaq 100 is up 20% over the same time period.

The relentless selling in 2022 seemed to hit investors hard on a psychological level, as sentiment towards stocks declined to historic levels. Fears of an imminent recession, still-high inflation, and future Fed interest rate hikes chipped away at investor confidence towards stocks.

The AAII Investor Sentiment Survey saw bearish respondents outweigh bullish respondents for a record 45 weeks straight, and only two of the prior 60 weekly results showed bulls overpowering the bears. The survey started in 1987.

Another investor sentiment indicator, the CNN Fear & Greed Index, flashed a "Greed" signal on Thursday with a score of 73. A month ago the indicator was in neutral territory with a score of 48, confirming the recent jump in investor sentiment.

Some traders view investor sentiment as a contrarian indicator, meaning that when the crowd gets overly bullish, it might pay to take the other side of the trade. Those contrarian bets tend to get more accurate when the bullish or bearish reading hits an extreme, and current readings suggest we're not there yet.

The AAII Investor Sentiment Bull-Bear spread is currently sitting in neutral territory with a score of 13, and the CNN Fear & Greed Index has been known to sit in "Extreme Greed" territory for a prolonged period of time. In other words, there could still be a bearish pool of investors to win over if stock prices extend their recent rally.