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AAII Sentiment Survey: Lowest Neutral Sentiment Since November 2014

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The percentage of individual investors describing their market outlook as “neutral” is now at its lowest level in more than two years, according to the latest AAII Sentiment Survey. Pessimism extended its rebound, and optimism is higher as well.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.5 percentage points to 44.7%. The increase keeps optimism above 40% for a fifth consecutive week and above its historical average of 38.5% for a sixth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 7.4 percentage points to 23.0%. This is the lowest reading since November 13, 2014 (22.8%). The drop also keeps neutral sentiment below its historical average of 31.0% for the fourth time in five weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 5.8 percentage points to 32.3%. This is a six-week high. The rise also puts pessimism back above its historical average of 30.5%.

The Federal Open Market Committee’s decision to raise interest rates was announced near the end of our survey period, which runs Thursday through Wednesday. As such, the current results mostly do not reflect any reaction to the meeting statement or Chair Janet Yellen’s press conference.

Neutral sentiment is down by a cumulative 19 percentage points from its pre-election (November 2) reading of 42.0%. At its current level, neutral sentiment near the bottom of its typical range. Historically, the stock market has underperformed during the six- and 12-month periods following unusually low neutral sentiment readings. Any reading below 22.6% would be unusually low.

As I explained last week, opinions about the post-election rally among individual investors are mixed. Some are optimistic about the impact President-elect Donald Trump could have on the economy, while others think stocks have risen too far too fast or view the rally not being temporary in nature. Also playing a role is uncertainty among some individual investors about the president-elect’s policies, the direction of interest rates, valuations and the pace of economic and earnings growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 44.7%, up 1.5 percentage points
  • Neutral: 23.0%, down 7.4 percentage points
  • Bearish: 32.3%, up 5.8 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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