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AAII Sentiment Survey: Neutral Sentiment Matches a Record Despite Plunging

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Neutral sentiment plunged to a four-month low, as both optimism and pessimism both rose in the latest AAII Sentiment Survey. Nonetheless, neutral sentiment still matched a record set last year.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 6.1% percentage points to 30.5%. The rise is not large enough to prevent optimism from being below its historical average of 39.0% for a 23rd consecutive week, the longest such streak since a 29-week stretch in 1993.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 10.6 percentage points to 33.4%. This is the lowest neutral sentiment has been since April 2, 2015 (32.6%). Even with the large drop, neutral sentiment is above its historical average of 31.0% for a 32nd consecutive week. This ties the record for the longest streak of consecutive weeks with an above-average reading, which was set between January and August of last year.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 4.5 percentage points to 36.1%. The rise keeps pessimism above its historical average of 30.0% for a third consecutive week.

This is only the second time in approximately two years that bearish sentiment has been above 30% for a period of three consecutive weeks. The last time this occurred was October 16, 2014. We point this out to show how pessimism has largely been staying at low levels. During the past two years, the level of pessimism registered by our survey has averaged 26.5%. It is too early to say whether the recent occurrences of above-average bearish sentiment (six out of the past 10 weeks) is a sign of the pendulum swinging back the other way or if it’s just just a temporary blip in a longer-term trend.

Giving AAII members reasons for caution are concerns about the possibility of a sizable decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. The lack of market breadth and ongoing volatility are also playing a role. Keeping other AAII members optimistic is the Federal Reserve’s still-accommodative monetary policy, the ongoing bull market, sustained economic expansion and earnings growth.

This week’s AAII Sentiment Survey

  • Bullish: 30.5%, up 6.1 percentage points
  • Neutral: 33.4%, down 10.6 percentage points
  • Bearish: 36.1%, up 4.5 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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.

 

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