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AAII Sentiment Survey: Pessimism Hits a 10-Month High

Optimism rebounded and pessimism rose to a 10-month high in the latest AAII Sentiment Survey. The changes came as neutral sentiment plunged to its lowest level since early April.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.4 percentage points to 25.4%. The rebound follows what had been the lowest level of optimism since April 11, 2013. Even with the increase, bullish sentiment is below its historical average of 39% for a 15th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 7.1 percentage points to 40.3%. This is the lowest reading since April 2, 2015 (32.6%). It also ends a record streak of 10 consecutive weeks with neutral sentiment at or above 45%. Nonetheless, neutral sentiment is above its historical average of 31.0% for the 24th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.7 percentage points to 34.3%. Pessimism was last higher on August 7, 2014 (38.2%). This week’s increase keeps bearish sentiment above its historical average of 30.0% for just the sixth time this year.

Though individual investors’ short-term outlook became more polarized this week, neutral sentiment remains at an unusually high level—even with this week’s drop. There is not a single reason to explain the higher level of polarization this week, particularly since the Federal Open Market Committee’s statement was released near the end of this week’s survey period, though the shift does follow what had been a very low reading for bullish sentiment. The level of optimism registered last week was among the 40 lowest in the survey’s history.

Even with this week’s changes, optimism remains at an unusually low level and neutral sentiment, as noted above, remains at an unusually high level. Both such occurrences have typically been followed by better-than-average six- and 12-month returns for the S&P 500. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee, however, that history will repeat.)

Some AAII members are concerned about the possibility of a bigger decline in stock prices occurring, the pace of economic growth and lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 25.4%, up 5.4 percentage points
  • Neutral: 40.3%, down 7.1 percentage points
  • Bearish: 34.3%, up 1.7 percentage points

Historical averages:

  • 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.

 

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