AAII Sentiment Survey: Optimism Rises as Sentiment Becomes More Polarized


Optimism among individual investors rose to a six-week high despite the recent downward volatility in stock prices, according to the latest AAII Sentiment Survey. Neutral sentiment fell to its lowest level in 19 months, while pessimism rose to a two-month high.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.8 percentage points to 42.7%. This is the highest level of optimism registered by our survey since September 4, 2014 (44.7%). It is also the ninth week out of the past 10 with optimism above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 5.5 percentage points to 23.6%. This is the lowest neutral sentiment has been since March 14, 2013 (22.6%). It is also the third week in the past four with a neutral sentiment reading below the historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.7 percentage points to 33.7%. The increase puts pessimism above its historical average of 30.5% for the third consecutive week.

We’re starting to see some signs of polarization in terms of attitudes towards the market. Neutral sentiment has plunged by a cumulative 10.1 percentage points over the past two consecutive weeks. The drop has put neutral sentiment close to the bottom of its historical range. (One standard deviation below average is 22.1%.) At the same time, bullish sentiment has rebounded by a cumulative 7.3 percentage points over the same period. As far as pessimism, the current three-week streak of above-average bearish sentiment readings is the first such streak since August 22 through September 5, 2013.

Some AAII members have been looking for a dip in stock prices to reduce valuations, and this may be contributing to the increased optimism. Also playing roles are earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Keeping other AAII members cautious are worries about a continued drop in stock prices, a sense that prevailing valuations are still too high, geopolitical events, the pace of economic growth and Washington politics.

This week’s AAII Sentiment Survey results:

  • Bullish: 42.7%, up 2.8 percentage points
  • Neutral: 23.6%, down 5.5 percentage points
  • Bearish: 33.7%, up 2.7 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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