The percentage of individual investors expressing pessimism about the short-term direction of stock prices jumped to nearly a three-month high in the latest AAII Sentiment Survey. Optimism, conversely, fell to a five-month low. Neutral sentiment also fell.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.6 percentage points to 23.9%. Optimism was last lower on July 29, 2015 (21.1%). This is the 39th out of the past 41 weeks with a bullish sentiment reading below its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 4.9 percentage points to 36.8%. This is a two-month low. Even with the drop, neutral sentiment is above its historical average of 31.0% for the 14th consecutive week and the 48th week this year.
Bearish sentiment, expectations that stock prices will fall over the next six months, spiked upwards by 9.5 percentage points to 39.4%. Pessimism was last higher on September 30, 2015 (39.9%). This is just the third time in 14 weeks that pessimism is above its historical average of 30.0%.
During the past two weeks, bearish sentiment has risen by a cumulative 18.2 percentage points, while neutral sentiment has fallen by a cumulative 12.6 percentage points. Bullish sentiment has also fallen, dropping by a cumulative 5.6 percentage points. Optimism is at an unusually low level (more than one standard deviation below its historical average), while pessimism is near the upper end of its typical range.
There isn’t a singular reason to explain the shift in sentiment. The major stock indexes, though ending the seven-day survey period essentially flat, are down month to date. Stock prices have experienced volatility; the S&P 500 has incurred intraday swings of 1.5% on six days this month. In addition to fretting about further declines in stock prices, some AAII members are concerned about corporate earnings, the pace of U.S. economic growth and geopolitics, as well as being frustrated with U.S. politics.
Keeping some AAII members optimistic, however, is the possibility of future price gains, the ability of the S&P 500 to continue trading near its record high, seasonal trends and better-than-forecast third-quarter earnings.
Most of this week’s survey responses were given before yesterday’s rate hike announcement by the Federal Open Market Committee.
This week’s AAII Sentiment Survey results:
- Bullish: 23.9%, down 4.6 percentage points
- Neutral: 36.8%, down 4.9 percentage points
- Bearish: 39.4%, up 9.5 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.).
Want to weigh in? Take the survey yourself and see results online at http://www.aaii.com/sentimentsurvey.
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