AAII Sentiment Survey: Pessimism Pulls Back, But Still High

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Pessimism among individual investors pulled back from a 33-month high but remains well above average. The latest AAII Sentiment Survey also shows a rebound in optimism and a decline in neutral sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 8.6 percentage points to 33.9%. The increase was not large enough to prevent optimism from staying below its historical of average 38.5% for the 10th time in 12 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.0 percentage points to 26.6%. Neutral sentiment was last lower on January 31, 2018 (26.5%). Neutral sentiment is below its historical average of 31.0% for the fifth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 7.7 percentage points to 39.5%. Even with the drop, pessimism is above its historical average of 30.5% for the eighth consecutive week and the 11th time in 12 weeks.

Last week, bearish sentiment surged to 47.1%. This was the highest level of pessimism recorded by our survey since February 10, 2016 (48.7%). This week’s pullback puts bearish sentiment back within its typical range, though just barely so. The breakpoint between normal and unusually high readings is 39.8%.

Also last week, bullish sentiment fell to an unusually low level of 25.3%. Optimism was last lower on August 31, 2017 (25.0%). Bullish sentiment is now back within its typical range.

Historically, the S&P 500 index has realized above-average and above-median returns following unusually low bullish sentiment readings. Returns have been higher following unusually high readings for bearish sentiment, though the magnitude of outperformance is much smaller.

The ongoing volatility in stock prices is affecting the short-term outlook for individual investors. Many AAII members are not altering their strategies, however. Also influencing individual investor sentiment is Washington politics (including President Donald Trump and the midterm elections), tariffs (particularly the ongoing trade war with China), corporate earnings, the Federal Reserve, valuations and concerns about the pace of economic growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 33.9%, up 8.6 percentage points
  • Neutral: 26.6%, down 1.0 percentage points
  • Bearish: 39.5%, down 7.7 percentage points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Want to weigh in? Take the survey yourself and see results online at www.aaii.com/sentimentsurvey.

If you want to become an effective manager of your own assets and achieve your financial goals, consider a risk-free 30-day Trial AAII Membership

 

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