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AAII Sentiment Survey: Optimism Drops Below 50%

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Optimism pulled back from a four-year high, falling below 50% for the first time this month in the latest AAII Sentiment Survey. Neutral sentiment rebounded and pessimism rose for the second consecutive week.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 8.8 percentage points to 49.1%. The drop puts optimism at a five-week low. Nonetheless, bullish sentiment remains above its historical average of 39.0% for the seventh consecutive week and the 14th out of the past 15 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 4.3 percentage points to 27.1%. Even with the increase, neutral sentiment remains below its historical average of 30.5% for the seventh time in the past nine weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 4.5 percentage points to 23.8%. The rise was not large enough, however, to prevent pessimism from being below its historical average of 30.5% for the fifth consecutive week and the 38th week this year.

Seeing a bit of reversion to the mean is not unexpected given how high optimism was last week (57.9%, the 58th-highest reading in the survey’s history) and how low pessimism was on November 6, 2014 (15.1%, a nine-year low). Optimism remains at a very high level this week, however. Bullish sentiment is right at the border between what is typical and what is unusually high. Viewed in another manner, optimism is above 49% and pessimism is below 25% for the fifth consecutive week.

The sustained high level of optimism is occurring as the S&P 500 has risen by 10% since hitting a 2014 closing low on October 15. In addition to the avoidance of a correction and the strong rebound in equity prices, individual investors are also encouraged by falling energy prices, earnings growth, the Federal Reserve’s ending of its bond purchasing program and sustained economic expansion. Some AAII members may also be reacting to the outcome of the midterm elections. Keeping other AAII members cautious are geopolitical events, a sense that prevailing valuations are too high and the pace of economic growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 49.1%, down 8.8 percentage points
  • Neutral: 27.1%, up 4.3 percentage points
  • Bearish: 23.8%, up 4.5 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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