The proportion of individual investors describing their six-month outlook for stocks as neutral is above 45% for a second consecutive week for the first time in more than 26 years. Optimism rebounded back above 30%, while pessimism declined.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 3.4 percentage points to 32.1%. Even with the upward move, optimism is below its historical average of 39.0% for the sixth consecutive week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 2.0 percentage points to 45.1%. This is the first time neutral sentiment has stayed at or above 45% on consecutive weeks since January 20 and January 27, 1989. (Neutral sentiment was 47.0% and 49.0%, respectively, on those dates.) This week is the 15th consecutive week with neutral sentiment above its historical average of 30.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, declined 1.4 percentage points to 22.8%. This drop puts bearish sentiment at a seven-week low. The historical average is 30.5%.
Seeing neutral sentiment stay at or above 45% is very unusual, though it did it reach and hold even higher levels throughout 1988. Historically, unusually high levels of neutral sentiment have been correlated with better-than-average market performance over the following six- and 12-month periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.) There is no guarantee history will repeat in the future, however.
Keeping some AAII members encouraged is the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy. Causing other AAII members to be cautious or pessimistic are prevailing valuations, recent price volatility, geopolitical events, the pace of economic growth, the impact of the stronger dollar in earnings growth and worries that a notable decline in stock prices could occur.
This week’s AAII Sentiment Survey results:
- Bullish: 32.1%, up 3.4 percentage points
- Neutral: 45.1%, down 2.0 percentage points
- Bearish: 22.8%, down 1.4 percentage points
- 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.