A Bullish Market Fails to Lift Spirits: Why Investors Remain Bearish Despite the Stock Market’s Resilience

August Sees Investment Market Soar

August has been kind to investors. All three of the major indices recently hit all-time highs, with the Nasdaq accomplishing that feat on Aug. 13, the S&P 500 doing so one day later and the Dow Jones Industrial Average reaching its first record high of 2025 on Friday.

Stocks’ record highs raise concerns

But even though stock valuations continue to surge, investor sentiment is increasingly bearish, with wealthy and everyday investors alike saying in surveys they’re wary of the investment landscape.

Stocks’ record highs raise concerns

From a market rotation that has seen previously underrepresented sectors joining the rally to an injection of optimism stemming from heightened expectations of an interest rate cut at the Federal Reserve’s September meeting, stocks have gotten a boost that largely overshadowed tech’s sell-off earlier this month.

No AI Bubble in Sight

According to David Lundgren, chief market strategist and portfolio manager at Little Harbor Advisors, that’s not what we’re seeing. “As we’ve learned over the past few years, you can have a very expensive market that just keeps going up,” he says. “ We have a very divergent environment that’s been in place for three years now. And despite this rally since the April bottom, most people would be surprised to know that the average stock today is still down over 10% from its 2021 peak.”

Beware of Marked Sentiment

Many of the companies involved in the dot-com bubble didn’t have earnings or even sales — “just a hope and a dream,” he adds. Beyond misplaced concerns about an AI-fueled bubble, another factor contributing to negative sentiment is the market’s concentration. Mega-cap companies like those comprising the Magnificent Seven have resulted in disproportionate weightings of the major indices. The top 10 companies in the S&P 500 now account for more than 37% of the entire index.

Investors’ Sentiment Could Be a Good Sign

For the latter part of August, investor sentiment has leaned heavily pessimistic. According to the American Association of Individual Investors, which conducts a weekly sentiment survey, the past two weeks have seen bearishness outweigh bullishness 44.8% to 30.8%, and 46.2% to 29.9%, respectively. That’s actually a good thing for behaviorally driven markets.

Tariffs Cast a Shadow Over the Market

Another factor contributing to negative investor sentiment is lingering tariff-induced uncertainty — a recurrent theme in 2025. So far this year, American consumers have absorbed 22% of tariff costs according to a report published in July by economists at Goldman Sachs. However, that figure is expected to rise to 70% by October.

Investors’ Focus on Tariffs May Be Overblown

But Lundgren believes investors’ tariff concerns may be overblown. “For a systematic long-term trend, I couldn’t care less what the Fed is doing, what the Treasury’s doing or how much cash Warren Buffett’s raising,” he says. For buy-and-hold investors, Lundgren says, “just make sure that what you’re doing day to day makes sense, and over the long term, you’ll win.”

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