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AAII Sentiment Survey: Optimism Near a Two-Year High

Optimism among individual investors about the short-term direction of stock prices is at its highest level in nearly two years, according to the latest AAII Sentiment Survey. At the same time both neutral and bearish sentiment are lower.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 5.5 percentage points to 50.5%. Optimism was last higher on January 1, 2015 (51.7%). This is just the 11th week this year that bullish sentiment is above its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.0 percentage points to 23.9%. Neutral sentiment was last lower on March 9, 2017 (23.5%). The historical average is 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 2.5 percentage points to 25.6%. Pessimism was last lower on November 9, 2017 (23.1%). The historical average is 30.5%.

Since hitting a near-term bottom of 29.3% on November 16, bullish sentiment has risen for five consecutive weeks. The cumulative increase over this five-week period is 21.1 percentage points. At the same time, neutral sentiment has fallen by a cumulative 11.6 percentage points.

At current levels, optimism is unusually high, meaning more than one standard deviation above its historical average. Historically, the S&P 500 has realized below-average and below-median returns over the six- and 12-month periods following unusually high bullish sentiment readings. An updated table with the historical readings can be found in my Investor Update commentary from last week.

The results for this week were tabulated after the Federal Open Market Committee’s latest meeting, but largely before the tax reform bill was passed. (As the results to this week’s special question show, the majority of individual investors agree with the decision to raise rates.) Our previous polling of individual investors showed that most were not currently making investment decisions based on the pending tax legislation. We’re following up to see if opinions have changed with the special question for the survey period starting today and running through next Wednesday.

This year’s record highs for the major U.S. stock indexes have encouraged some individual investors, though others have expressed concerns about the possibility of a pullback or a more severe drop occurring. Also affecting investor sentiment are earnings growth, economic growth, valuations and the lack of volatility. Washington politics remain at the forefront of many individual investors’ minds.

This week’s Sentiment Survey results:

  • Bullish: 50.5%, up 5.5 percentage points
  • Neutral: 23.9%, down 3.0 percentage points
  • Bearish: 25.6%, down 2.5 percentage points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Want to weigh in? Take the survey yourself and see results online at www.aaii.com/sentimentsurvey.

If you want to become an effective manager of your own assets and achieve your financial goals, consider a risk-free 30-day Trial AAII Membership

 

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