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AAII Sentiment Survey: Optimism Surges; At Highest Level in a Year

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Optimism among individual investors about the short-term direction of the stock market surged to its highest level since last November in the latest AAII Sentiment Survey. Neutral sentiment plunged to its lowest level in more than 10 months. Bearish sentiment is lower as well.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 15.3 percentage points to 38.9%. As noted above, optimism was last higher on November 4, 2015 (39.0%). The large increase puts bullish sentiment above its historical average of 38.5% for the first time in 53 weeks and just the third time during the past 88 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 10.3 percentage points to 31.8%. This is the lowest neutral sentiment has been since January 27, 2016 (30.3%). Even with the large drop, neutral sentiment remains above its historical average of 31.0% for the 41st consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 5.0 percentage points to 29.3%. Pessimism remains in the approximate 10-point range it has fluctuated within over the past 11 weeks. This week’s drop does, however, put bearish sentiment below its historical average of 30.5% for the first time in four weeks.

This week’s jump in bullish sentiment is the largest since an 18.4 percentage-point spike on July 15, 2010. It is also the biggest one-week change in either direction since a 16.2 percentage-point drop on April 11, 2013. This week’s large upward move follows what had been the 104th lowest level of optimism registered over the 29-year history of our Sentiment Survey.

The survey period runs from Thursday through Wednesday. Given Tuesday’s election, we analyzed our database to determine the timing of when AAII members actually took the survey. Approximately 80% of the responses were recorded by Monday night. We send out reminders to take the survey to a revolving group of AAII members each Monday and, not surprisingly, more than half of this week’s survey responses were recorded on Monday.

Giving some individual investors reason for optimism are the perceived lack of investment alternatives, corporate earnings, low/stable energy prices and sustained, albeit slow, economic growth. Causing others to have reason for concern is this fall’s previous weakness in stock prices and the possibility of the stock market experiencing a larger drop, angst heading into the election, valuations, global economic uncertainty, the pace of corporate earnings growth and a forthcoming rate hike.

AAII Sentiment Survey results:

  • Bullish: 38.9%, up 15.3 percentage points
  • Neutral: 31.8%, down 10.3 percentage points
  • Bearish: 29.3%, down 5.0 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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