Pessimism among individual investors about the short-term direction of stock prices rose to nearly 40%, according to the latest AAII Sentiment Survey. At the same time, optimism fell below 30%.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 1.9 percentage points to 28.3%. This is the 11th time out of the last 12 weeks that optimism is at or below its historical average of 38.5%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.3 percentage points to 32.1%. The historical average is 31.0%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.2 percentage points to 39.6%. The increase keeps pessimism at or above its historical average of 30.5% for the eighth consecutive week and the 11th out of the last 12 weeks.
This week’s results put optimism very close to the bottom of its typical range and pessimism very close to the top of its typical range. A bullish sentiment reading below 28.1% would be unusually low (more than one standard deviation below average.) A bearish sentiment reading above 40.0% would be unusually high (more than one standard deviation above average). Of the two, unusually low bullish sentiment readings have a much stronger record as a contrarian indicator, with the S&P 500 realizing a median gain of 6.3% over the following six-month periods.
The potential impact that President Trump could have on the domestic and global economy continues to cause uncertainty or concern among some investors, while encouraging others. At the same time, prevailing level of valuations and the lack of downside volatility have increased concern about the potential for a forthcoming drop in stock prices.
This week’s AAII Sentiment Survey results:
- Bullish: 28.3%, down 1.9 percentage points
- Neutral: 32.1%, down 0.3 percentage points
- Bearish: 39.6%, up 2.2 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.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.