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AAII Sentiment Survey: Optimism Declines, but Stays Above Average

Optimism among individual investors about the short-term direction of the market declined for a second week in the latest AAII Sentiment Survey. Even with the pullback, bullish sentiment is above average for the fifth consecutive week, the longest such streak since February 13 through March 13, 2014.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.3 percentage points to 40.4%. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 33.0%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 2.6 points to 26.6%. Even with the increase, pessimism is below its historical average of 30.5% for the 42nd time in the past 48 weeks.

Bullish sentiment has declined by a cumulative 11.5 percentage points since nearly reaching 52% two weeks ago. The pullback represents a reversion to the mean following the unusually high level of optimism (bullish sentiment has only exceeded 50% four times since February 2011). This week’s reading is also likely somewhat influenced by the S&P 500’s recent inability to stay above 2,000.  It is worth noting that in the backdrop of the recent decline in bullish sentiment, pessimism remains below average.

Keeping many individual investors optimistic about the short-term direction of stock prices is the S&P 500’s overall upward momentum, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Causing other AAII members to be pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.

This week’s AAII Sentiment Survey:

  • Bullish: 40.4%, down 4.3 percentage points
  • Neutral: 33.0%, up 1.7 percentage points
  • Bearish: 26.6%, up 2.6 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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