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AAII Sentiment Survey: Neutral Sentiment at 2-Month High as Pessimism Plunges

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The percentage of individual investors describing their short-term outlook for stocks as neutral rose to a two-month high as pessimism plunged in the latest AAII Sentiment Survey. Optimism, though still low, rebounded to a four-week high.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 4.8 percentage points to 28.8%. This is the 48th consecutive week and the 81st out of the past 83 weeks with a bullish sentiment reading below its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 4.4 percentage points to 43.3%. Neutral sentiment was last higher on August 3, 2016 (43.4%). The rise keeps neutral sentiment above its historical average of 31.0% for the 36th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 9.2 percentage points to 27.9%. The drop puts pessimism at a seven-week low. The drop also puts pessimism below its historical average of 30.5% for the first time in four weeks.

This week’s drop in pessimism is the largest weekly decrease since February 10, 2016, when bearish sentiment fell 10.9 percentage points. We have also seen big weekly increases this year, with pessimism rising by 14.0 percentage points on February 10, 9.7 percentage points on June 15 and 7.4 percentage points on September 14. The median weekly change (in either direction) for bearish, and bullish, sentiment over the life of the survey is about 5.0 percentage points.

The pullback in bearish sentiment occurred after pessimism hit 38.3% two weeks ago. A settling of market volatility appears to have helped calmed the nerves of anxious investors. Nonetheless, some investors still have concerns about the possibility of the stock market experiencing a larger drop than what occurred in mid-September. Further adding to pessimism about the short-term direction of stock prices are concerns about valuations, global economic uncertainty and the pace of corporate earnings growth. Giving other individual investors reason for optimism are this summer’s rise in stock prices, the perceived lack of investment alternatives, corporate earnings, low/stable energy prices and sustained, albeit slow, economic growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 28.8%, up 4.8 percentage points
  • Neutral: 43.3%, up 4.4 percentage points
  • Bearish: 27.9%, down 9.2 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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