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AAII Sentiment Survey: Bull-Bear Spread Tightest Since August 2016

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The percentage of individual investors describing their short-term market outlook as “bearish” rose over last week, while optimism pulled back, according to the latest AAII Sentiment Survey. This change has now pushed the bull-bear spread (bullish sentiment minus bearish sentiment) to 0.7%, its tightest range since August 24, 2016.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.7 percentage points to 33.1%. Optimism was last lower on February 1, 2017 (32.8%). The historical average is 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.0 percentage points to 34.5%. Neutral sentiment was last lower on February 1, 2017 (33.0%), though neutral sentiment has been above its historical average for four consecutive weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 4.7 percentage points to 32.4%. Pessimism was last higher on February 1, 2017 (34.1%). This week’s gain now puts bearish sentiment back above its average of 30.5%.

Since starting 2017 at 46.2%, bullish sentiment has pulled back by a cumulative 13.1 percentage points. Over the same period, neutral sentiment and bearish sentiment have risen by 5.9 and 7.2 percentage points, respectively. (The numbers are rounded.) All three of the indicators remain within their typical historical ranges.

U.S. markets pulled back slightly on Thursday, pausing after posting a series of records. The S&P 500 rose seven sessions through Wednesday and has closed at new highs eight times in 2017. The week was off to a good start after the Commerce Department reported stronger-than-expected growth in retail sales in January and the Federal Reserve reported factory output increased last month. Additionally, the Labor Department said that a gauge of U.S. inflation rose to its highest annual level in nearly five years.

Federal Reserve Chair Janet Yellen spoke this week, stating that the central bank may raise rates at its upcoming meeting. Following Yellen’s congressional testimony on Tuesday, Fed-funds futures tracked by CME Group signaled a 22% chance that the Federal Reserve may raise rates at the next meeting on March 15, 2017, almost double the probability before Janet Yellen’s statements.

This week’s AAII Sentiment Survey results:

  • Bullish: 33.1%, down 2.7 percentage points
  • Neutral: 34.5%, down 2.0 percentage points
  • Bearish: 32.4%, up 4.7 percentage points

Historical averages:

  • 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.

If you want to become an effective manager of your own assets and achieve your financial goals, consider a risk-free 30-day Trial AAII Membership.

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