AAII Sentiment Survey: Big Changes in Optimism and Pessimism

Posted on August 14, 2014 | AAII Survey

Optimism surged and pessimism plunged in the latest AAII Sentiment Survey. The shift in attitudes about the short-term direction of stock prices as optimism experienced its biggest one-week gain in six months and pessimism experienced its largest two-week fluctuation in nearly a year.

Bullish sentiment, expectations that stock prices will rise over the next six months, surged 8.9 percentage points to 39.8%. This is the biggest one-week rise in optimism since February 13, 2014, when it jumped 12.3 percentage points to 40.2%. Bullish sentiment is now at its highest level since June 12, 2014 (44.7%). This week is also just the third in the past 22 weeks with optimism above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose by 2.3 percentage points to 33.2%. The rebound keeps neutral sentiment above its historical average of 30.5% for the 32nd consecutive week. This is the third-longest streak of consecutive weekly readings above 30.5% in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 11.3 points to 27.0%. The drop puts pessimism at a six-week low. It also puts bearish sentiment below its historical average of 30.5% for the 37th time in the past 44 weeks.

This week’s 11.2 percentage point drop in bearish sentiment follows last week’s 7.1 percentage point rise. A fluctuation of comparable size has not occurred since August 2013. Pessimism jumped 14.7 percentage points to 42.9% on August 22, 2013 and then pulled back by 12.1 percentage points to 30.7% on August 29, 2013.

The big change in sentiment this week occurred as both large-cap and small-cap stocks rebounded from their recent lows. Changes in the composition of AAII members taking the survey this week relative to last week may have also had an effect. (We send out reminders to take the survey to a rotating group of AAII members each week.) Other factors include second-quarter earnings, sustained economic growth and the Federal Reserve’s tapering of bond purchases. Keeping some individual investors pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.

It should be noted that despite this week’s big changes, both optimism and pessimism remain well within their respective typical ranges. Neither is unusually high or low at current levels.

This week’s AAII Sentiment Survey results:

  • Bullish: 39.8%, up 8.9 percentage points
  • Neutral: 33.2%, up 2.3 percentage points
  • Bearish: 27.0%, down 11.3 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • 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.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.