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AAII Sentiment Survey: Neutral Sentiment Rebounds as Pessimism Drops

The proportion of individual investors describing their short-term market expectations as neutral rebounded back above 40% in the latest AAII Sentiment Survey. The change occurred as pessimism pulled back after nearly hitting a two-year high last week.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.2% percentage points to 24.3%. The increase follows what had been a seven-week low. It is not large enough, however, to prevent optimism from being below its historical average of 39.0% for a 22nd 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, jumped 5.8 percentage points to 44.0%. The increase keeps neutral sentiment above its historical average of 31.0% for a 31st consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 9.0 percentage points to 31.7%. The drop follows last week’s large upward spike. Even with the decrease, pessimism is above its historical average of 30.0% for a second consecutive week and the fifth time in the past nine weeks.

Bullish sentiment is at an unusually low level (below 28.5%) for the fourth time in six weeks. Neutral sentiment, conversely, is back at an unusually high level (above 39.6%) for the 17th time in 18 weeks. Both unusually low optimism and unusually high neutral sentiment have been correlated with above-median returns for the S&P 500. (There is no guarantee that history will repeat.)

Though there have been notable swings in bullish and bearish sentiment over the past two months, pessimism has generally been higher relative to the levels registered over the preceding 12 months. A bigger constant has been neutral sentiment, which is now just shy of matching the record for the most consecutive weeks of above-average readings (32 weeks).

Giving AAII members reasons for caution are concerns about the possibility of a sizeable 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. As this week’s special question indicates, the lack of market breadth is a factor for some individual investors as well. 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 results:

  • Bullish: 24.3%, up 3.2 percentage points
  • Neutral: 44.0%, up 5.8 percentage points
  • Bearish: 31.7%, down 9.0 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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