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AAII Sentiment Survey: Optimism Pulls Back Following Big Rise

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Optimism pulled back in the latest AAII Sentiment Survey after having risen significantly over the previous three weeks. Both neutral and bearish sentiment rebounded this week, after having both previously fallen.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell by 6.1 percentage points to 43.8%. The pullback follows last week’s reading of 49.9%, which was the highest level recorded by our survey since January 1, 2015 (51.7%). Even with this week’s drop, bullish sentiment remains above its historical average of 38.5% for a fourth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.1 percentage points to 31.1%. The increase puts neutral sentiment about even with its historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 3.0 percentage points to 25.1%. Pessimism was last lower on August 17, 2016. The increase is not large enough to prevent pessimism from remaining below its historical average of 30.5% for a fourth consecutive week.

This week’s results follow a significant shift in sentiment. During the three-week period of November 2 through November 23, 2016, optimism rose by a cumulative 26.3 percentage points, neutral sentiment fell by a cumulative 14.0 percentage points and pessimism fell by a cumulative 12.2 percentage points. The rise in bullish sentiment was the 13th largest three-week increase in the survey’s 29-year history. As I will discuss in this evening’s AAII Investor Update, on average, the S&P 500 has only been slightly positive over the six-month periods that followed the 12 previous increases in optimism (up six times and down six times). Furthermore, unusually high weekly readings of optimism—as occurred last week—have historically been followed by below-average returns for the S&P 500. The average six-month return for the S&P 500 following such readings is 2.7%.

The election’s outcome remains front and center for many AAII members. Some are encouraged by possible changes President-elect Donald Trump could make, while others are uncertain or want to wait to see how his administration’s policies and their impact on the market evolve. There are also individual investors who are pessimistic following the election. Beyond the election, the direction of interest rates, the pace of economic and earnings growth, and valuations are influencing individual investors’ expectations for the stock market.

This week’s AAII Sentiment Survey results:

  • Bullish: 43.8%, down 6.1 percentage points
  • Neutral: 31.1%, up 3.1 percentage points
  • Bearish: 25.1%, up 3.0 percentage points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • 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.).

Want to weigh in? Take the survey yourself and see results online at http://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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