AAII Sentiment Survey: Pessimism Plunges to a Nine-Year Low


Pessimism among individual investors fell while optimism rose to its highest level for 2014 in the latest AAII Sentiment Survey. At the same time, nearly one-third of survey respondents describe their short-term market outlook as “neutral.”

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.3 percentage points to 52.7%. This is the largest amount of optimism registered by our survey since December 26, 2013. It is also the fifth consecutive week and the 12th out of the past 13 weeks with bullish sentiment above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.7 percentage points to 32.3%. The rise puts neutral sentiment back above its historical average of 30.5% for the first time in five weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 6.0 percentage points to 15.1%. This is the smallest amount of pessimism registered by our survey since July 14, 2005 (14.0%). Bearish sentiment has been lower on only 56 out of the 1,400+ weeks tracked by our survey. The historical average is 30.5%.

The spread between bullish and bearish sentiment (the “bull-bear spread”) is now at 37.6 points. The last time we saw a bull-bear spread this wide was January 6, 2011.

Bearish sentiment has plunged by a cumulative 18.6 percentage points since hitting a near-term high of 33.7% in mid-October. Over the same period, bullish sentiment has risen by a cumulative 17.3 percentage points. At current levels, optimism is unusually high and pessimism is unusually low. Historically, such occurrences have been followed by lower-than-average levels of market gains, as I explained in the June 2014 AAII Journal.

Individual investors continue to react positively to the market’s rebound from its mid-October lows. Also contributing to the level of optimism are earnings growth, the Federal Reserve’s ending of its bond purchasing program and sustained economic expansion. Keeping some AAII members cautious are worries that a larger drop in stock prices is forthcoming, a sense that prevailing valuations are still too high, geopolitical events and the pace of economic growth. It is unclear what, if any, impact Tuesday’s elections had on investor sentiment.

This week’s AAII Sentiment Survey results:

  • Bullish: 52.7%, up 3.3 percentage points
  • Neutral: 32.3%, up 2.7 percentage points
  • Bearish: 15.1%, down 6.0 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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