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AAII Sentiment Survey: Neutral Sentiment Surges

The percentage of individual investors describing their short-term outlook for stocks as “neutral” surged to its highest level since last summer. The sharp rise occurred as pessimism plunged.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 4.5 percentage points to 40.0%. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, surged by 7.6 percentage points to 40.0%. This is the largest amount of neutral sentiment since July 24, 2014 (40.4%). The jump puts neutral sentiment above its historical average of 30.5% for the sixth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, continued its recent volatility by falling 12.1 percentage points to 20.3%. The plunge puts pessimism at a six-week low. The historical average is 30.5%.

Neutral sentiment is at an unusually high level. The typical range of readings over the life of the survey is 22.1% to 39.3%. High levels of neutral sentiment have historically been followed by better-than-average gains in the S&P 500, as I explained in the June 2014 AAII Journal. This said, bullish sentiment was at an unusually high level last month and such readings have historically been followed by smaller-than-average gains in the S&P 500.

A combination of recent price volatility and fourth-quarter earnings reports have contributed to the recent swings in both bullish and bearish sentiment registered by our survey over the past few weeks. Keeping AAII members encouraged is the overall upward momentum of stock prices, comparatively low energy prices, earnings growth and sustained economic expansion. Causing other members to be cautious or pessimistic are disappointing earnings or guidance from certain companies, geopolitical events, the impact of lower oil prices on energy stocks, a sense that prevailing valuations for stocks are too high, the pace of economic growth and worries that an even larger decline in stock prices could occur.

This week’s AAII Sentiment Survey results:

  • Bullish: 40.0%, up 4.5 percentage points
  • Neutral: 39.7%, up 7.6 percentage points
  • Bearish: 20.3%, 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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