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AAII Sentiment Survey: Pessimism Jumps to a Two-Month High

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Pessimism about the short-term direction of stock prices rose to a two-month high in the latest AAII Sentiment Survey. AAII members grew more cautious overall, as fewer members anticipated price increases or flat markets over the next six months. All three sentiment indicators are well within their typical historical ranges, however.

Bullish sentiment, expectations that stock prices will rise over the next six months, pulled back by 3.0 percentage points to 35.4%. The decline puts optimism below its historical average of 39.0% for the fourth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 4.5 percentage points to 32.6%. This is an eight-week low. Even with the drop, neutral sentiment is above its historical average of 30.5% for the 13th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 7.6 percentage points to 32.0%. The rise puts pessimism at its highest level since February 5, 2015, and above its historical average of 30.5%.

The comparatively higher level of volatility in stock prices this year has contributed to notable swings in the sentiment readings. For example, neutral sentiment has fallen by a cumulative 10.4 percentage points over the past three weeks after rising to a 10-month high of 43.0% on March 12, 2015.

In addition to the recent price fluctuations, prevailing valuations, concerns about the market reaction to a potential forthcoming interest rate hike, worries that an even larger decline in stock prices could occur and the pace of economic growth are weighing on some AAII members’ short-term market outlook. Keeping other AAII members encouraged is sustained economic expansion, still-accommodative monetary policy, a lack of investment alternatives to stocks and the ongoing bull market.

This week’s AAII Sentiment Survey results:

  • Bullish: 35.4%, up 3.0 percentage points
  • Neutral: 32.6%, down 4.5 percentage points
  • Bearish: 23.0%, up 7.6 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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