Members Stay the Course Through Sentiment Shifts

Posted on July 30, 2015 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members how much changes in sentiment towards the stock market impact their portfolio decisions. Approximately 33% said changes in sentiment have no impact and an additional 35% said that sentiment changes have not much or very little impact. Adherence to a long-term investment strategy was the most common reason given as to why. Some respondents said that they focus on other indicators. Slightly more than 17% of all respondents said they consider sentiment when making portfolio decisions, with several saying that they use it as a contrarian indicator.

Here is a sampling of the responses:

  • “I don’t follow changes in sentiment, only my own.”
  • “Little impact to my portfolio decisions as I am a long-term, buy-and-hold investor.”
  • “None. I stick to my plan in good times and bad.”
  • “Not too much when positive, but it helps identify bottoms when extremely negative.”
  • “Large shifts in the AAII surveys get my attention and motivate me to review my portfolio allocations.”


AAII Sentiment Survey: Pessimism Surges Close to a Two-Year High

Posted on July 30, 2015 | AAII Survey

Pessimism surged to its highest level in nearly two years in the latest AAII Sentiment Survey. Optimism plunged, while neutral sentiment fell below 40% for the first time since April.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged by 11.4 percentage points to 21.1%. The drop puts optimism at a seven-week low. This is the 21st consecutive week with bullish sentiment below its historical average of 39.0%, the longest such streak since a 29-week stretch in 1993. Readings below 28.5% are considered to be unusually low.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.7 percentage points to 38.2%. This is the first time neutral sentiment has been below 40% since April 2, 2015 (32.6%), ending a record 16-week streak. The decline is not large enough to keep neutral sentiment from staying above its historical average of 31.0% for a 30th consecutive week, however.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked 15.1 percentage points to 40.7%. Pessimism was last higher on August 22, 2013 (42.9%). The historical average is 30.0%. Readings above 40.1% are considered to be unusually high.

This week’s jump in pessimism is the largest one-week surge since a 26.3-point rise on April 11, 2013. It puts bearish sentiment above 40% for only the fourth time since November 2012. The rise comes as the major stock indexes fell during much of the survey period. This is also the fourth time in eight weeks that bearish sentiment has been above its historical average after spending much of the previous 12 months below 30%.

The link between unusually high levels of pessimism and above-average returns for the S&P 500 is not as strong as the link between unusually low levels of optimism and higher market returns. For the period of June 24, 1987 through May 7, 2015, the S&P 500 has had a median six-month gain of 5.6% following unusually high bearish sentiment readings. Over the same period, the large-cap index has a median six-month gain of 7.1% following unusually low bullish sentiment readings. These numbers compare to a median six-month gain of 5.3% for all rolling six-month periods over the timespan analyzed. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee that history will repeat.)

Causing many AAII members to be cautious are concerns about the possibility of a sizeable decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Keeping some AAII members optimistic is the Federal Reserve’s still-accommodative monetary policy, the ongoing bull market, sustained economic expansion and earnings growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 21.1%, down 11.4 percentage points
  • Neutral: 38.2%, down 3.7 percentage points
  • Bearish: 40.7%, up 15.1 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.



Sell OF THE WEEK 7/29/2015

Posted on July 29, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Ascena Retail Group (ASNA) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





Backtesting the Revised MAGNET Stock Screens

Posted on July 29, 2015 | Computerized Investing

One of the benefits of quantitative stock screening is that it helps to remove emotion from the equation by defining minimum criteria that a stock must meet in order to pass the screen. If you only invest in stocks that pass a stock screen, you remove the chance of investing in stocks that you may have personal interest in but that do not have the “winning qualities” defined in the screen. In order to invest in a stock methodology with confidence, however, it helps to have an idea of how it has performed over varying market cycles. While past performance is not a guarantee of future performance, backtesting allows us to see how a strategy would have hypothetically performed in the past.

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Five Warning Signs of Financial Fraud

Posted on July 29, 2015 | AAII Journal

The SEC recently listed five red flags investors should watch out for, including claims of high return with little or no risk.

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BUY OF THE WEEK 7/28/2015

Posted on July 28, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Werner Enterprises (WERN) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week




AAII WEEKLY FEATURE 7/28/2015

Posted on July 28, 2015 | Weekly Features

weekly-features

This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.

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THE SEcond QUARTER 2015 QUARTERLY MUTUAL FUND UPDATE – Rising Yields Help Cause Mediocre Returns

Posted on July 27, 2015 | Quarterly Mutual Fund Update

The second quarter was very mixed, at best, for many mutual funds. The average domestic large-cap stock fund was essentially flat, with the category average rounding to 0.0%. Mid-cap stock funds fell, on average, while small-cap stock funds averaged modest gains. Bond funds were mostly down as yields rose. Higher interest rates also dragged down real estate and utility stock funds.

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Ten DI Holdings Beat Earnings Estimates by an Average of 3.7%

Posted on July 24, 2015 | Dividend Investing

So far, July, and the year-to-date for that matter, has been marked by increased market volatility. According to S&P Capital IQ, “Through July 22, the S&P 500 experienced closing price volatility of 1% or more three times this month and 31 times this year, versus a total of 38 days each for calendar years 2014 and 2013.” However, they advise investors “not to sweat” the increased volatility. “Despite the impending initial rate hike, nearly 40% of all rate-tightening cycles since World War II did not precede bear markets. When they did, it was by an average of 13 and 1/2 months.”

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Changing Expectations

Posted on July 24, 2015 | Stock Superstars Report

Investors expect that the stock they purchase today will be worth more at some point in the future. Exactly how much more is determined by investors’ expectations of future performance. Every quarter, many companies follow their earnings releases with guidance for the upcoming quarter and full year. The new information is used by investors to recalculate their estimate of what the company is worth. This could lead to an increase, a decrease or no change at all in share price.

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