The percentage of individual investors describing their short-term market outlook as “neutral” is at its highest level since the election, according to the AAII Sentiment Survey. Pessimism fell, while optimism bounced back over last week.
Bullish sentiment, expectations that stock prices will rise over the next six months, grew 3.0 percentage points, to 35.8%. Optimism was last higher on January 18, 2017 (37.0%). The historical average is 38.5%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.5 percentage points to 36.5%. Neutral sentiment was last higher on November 2, 2016 (42.0%). This is the fifth time that neutral sentiment has been above its historical average of 31.0% since the election.
Bearish sentiment, expectations that stock prices will fall over the next six months, dropped 6.5 percentage points to 27.7%, bringing it below its historical average of 30.5%. Pessimism was last lower on January 11, 2017 (27.0%). This is the first time since the election that pessimism has dropped over 6.0 percentage points in a single week.
Since starting 2017 at 46.2%, bullish sentiment has pulled back by a cumulative 10.4 percentage points. Over the same period, neutral sentiment and bearish sentiment have risen by 7.9 and 2.5 percentage points, respectively. (The numbers are rounded.) All three of the indicators remain within their typical historical ranges.
Since Donald Trump’s election, markets all over the world have been watching to see what policies would be in the forefront of the new administration’s agenda. Today, Trump spoke with airline executives at the White House and sparked a rally in the market following his statement that a new “phenomenal” tax plan will be announced within the next three weeks.
Over the last several weeks, Trump has also mentioned his desire to roll back Dodd-Frank and the Affordable Care Act. If pursued, both actions may have a significant impact on several sectors. While the headlines’ focus is on Trump right now, over time economic growth and earnings tend to be the primary drivers of stock prices. Rising neutral sentiment signals that many investors are waiting to see what, if any, regulation is changed before making any decisions. Also influencing investor sentiment are valuations, earnings, consumer sentiment and the magnitude and timing of future interest rate increases.
This week’s AAII Sentiment Survey results:
- Bullish: 35.8%, up 3.0 percentage points
- Neutral: 36.5%, up 3.5 percentage points
- Bearish: 27.7%, down 6.5 percentage points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
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.).
Want to weigh in? Take the survey yourself and see results online at http://www.aaii.com/sentimentsurvey.
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