AAII Sentiment Survey: Neutral Sentiment Rises as Pessimism Pulls Back


Neutral sentiment rose back above its historical average as pessimism fell in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 4.6 percentage points to 33.5%. Even with the rise, optimism is below its historical average of 39.0% for the fourth time in five weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, rebounded by 7.5 percentage points to 35.7%. This is the 19th time in 23 weeks that neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 12.1 percentage points to 30.7%. The drop ends a streak of six consecutive weeks with rising levels of pessimism. The historical average is 30.5%.

The sharp pullback in bearish sentiment is not surprising given the ongoing volatility we have seen in the survey results over the past several months. The drop in pessimism should not be confused with signaling a more bullish stance on the part of individual investors, however. Many remain cautious given current market valuations, slow economic growth, the possibility of the Federal Reserve tapering its bond purchases and a lack of progress on key issues by Congress and the president. The approximate 4% decline in stock prices since early August is also having some effect on sentiment.

This week’s special question asked AAII members if they allocate more to individual stocks or to index funds. More than a third (37%) said they allocate more to stocks. Greater control and the chance to beat the market were the primary reasons given as to why. Slightly less than a quarter of respondents (23%) said they allocate more to index funds. Less risk and more diversification were the reasons given as to why. Notably 8% said they are allocating more to cash or intend to raise their cash allocations, even though we did not ask them about this.

Here is a sampling of the responses:

  • “Individual stocks. I want to do better than the indexes.”
  • “Individual stocks because the correlation is less than it is with index funds.”
  • “Index funds are the easiest and safest way to get market coverage and diversification.”
  • “Index funds. I’m trying to eliminate the risk of individual stock fluctuations.”
  • “More to individual stocks that pay dividends. I am near retirement age.”

This week’s AAII Sentiment Survey:

  • Bullish: 33.5%, up 4.6 percentage points
  • Neutral: 35.7%, up 7.5 percentage points
  • Bearish: 30.7%, down 12.1 percentage points

Historical averages:

  • 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


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