The proportion of individual investors describing their outlook for stock prices as “neutral” is above 40% for a third consecutive week. This is the first such streak in nearly a year. The latest AAII Sentiment Survey also shows small declines in both optimism and pessimism.
Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.3 percentage points to 28.2%. Optimism was last lower on May 31, 2017 (26.9%). The decline keeps bullish sentiment below its historical average of 38.5% for the 20th consecutive week and the 25th time out of the last 26 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 1.6 percentage points to 42.1%. Neutral sentiment remains above its historical average of 31.0% for the 11th consecutive week and the 16th out of the last 17 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, declined by a modest 0.2 percentage points to 29.6%. Pessimism remains below its historical average of 30.5% for the ninth time out of the last 11 weeks.
At current levels, optimism is right at the border between typical and unusually low readings. Bullish sentiment levels of 28.1% or lower are considered unusually low. Historically, unusually low levels of optimism have been followed by better-than-average gains in the S&P 500 index over the next six- and 12-month periods. There is no guarantee that these trends will continue in the future.
The last time neutral sentiment was above 40% on three consecutive weeks was July 27 through August 10, 2016. Readings above 40% are unusually high (more than one standard deviation above average).
Bullish sentiment has been gradually trending lower over the past three weeks. Though the Dow Jones industrial average set a new record high yesterday, it, the S&P 500 and the Russell 2000 index were generally lower over most of this week’s survey period. Still, some individual investors remain encouraged by this year’s record highs for the Dow, the S&P 500 and the Nasdaq. However, others fret about the level of valuations. The Trump administration’s ability (or lack thereof) to move forward on economic and tax policy remains at the forefront of many investors’ minds and is having a significant impact on sentiment. Other factors playing roles are earnings, concerns about the possibility of a pullback in stock prices and interest rates/monetary policy.
This week’s AAII Sentiment Survey
- Bullish: 28.2%, down 1.3 percentage points
- Neutral: 42.1%, up 1.6 percentage points
- Bearish: 29.6%, down 0.2 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.
Want to weigh in? Take the survey yourself and see results online at http://www.aaii.com/sentimentsurvey?a=blog20170713.
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.