Pessimism among individual investors about the short-term direction of stocks fell to its second-lowest level of the year in the latest AAII Sentiment Survey. At the same time, neutral sentiment rose to a three-month high, while optimism pulled back to its historical average.
Bullish sentiment, expectations that stock prices will rise over the next six months, declined by 1.4 percentage points to 39.0%, essentially matching its historical average. This is first time optimism has been at or above 39% on consecutive weeks since February 12 through March 5, 2015.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.4 percentage points to 42.4%. The increase puts neutral sentiment at its highest level since August 6, 2015. This is the eighth consecutive week and the 42nd week this year that neutral sentiment is above its historical average of 31.0%.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 2.0 percentage points to 18.6%. Pessimism was last lower on February 19, 2015 (17.9%). This is the fifth consecutive week with a bearish sentiment reading below the historical average of 30.0%, the longest such streak since April 9 through June 4, 2015.
At current levels, pessimism is at an unusually low level and neutral sentiment is at an unusually high level. Though low levels of bearish sentiment may seem like a contrary indicator, the average underperformance of the S&P 500 over the following 26- and 52-week periods has not been significant. Unusually high levels of neutral sentiment have been associated with better-than-average S&P 500 performance, however. (See Unusually High Neutral Sentiment Often Followed by Good Returns for more information.)
As the S&P 500 has rebounded off of its late September lows, pessimism has fallen by a cumulative 21.3 percentage points. Optimism has increased by a much smaller amount, however: 10.9 percentage points. Upward price momentum, seasonal trends, and potentially better-than-forecast third-quarter earnings surprises are having a positive impact. Nonetheless, some AAII members remained concerned about global and international events (particularly China as well as global economic weakness), U.S. monetary policy, U.S. politics and the pace of U.S. economic growth.
This week’s AAII Sentiment Survey results:
- Bullish: 39.0%, down 1.4 percentage points
- Neutral: 42.4%, up 3.4 percentage points
- Bearish: 18.6%, down 2.0 percentage points
- Bullish: 39.0%
- Neutral: 31.0%
- Bearish: 30.0%
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.