Pessimism about the short-term direction of stock prices rebounded strongly as neutral sentiment pulled back from a 13-year high in the latest AAII Sentiment Survey. Bullish sentiment fell, extending its streak of unusually low readings.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.9 percentage points to 22.2%. Optimism was last lower on July 29, 2015 (21.1%). Bullish sentiment has now been below 30% for six consecutive weeks and is below its historical average of 39.0% for 42 out of the past 44 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 11.7 percentage points to 39.6%. The large drop follows last week’s jump to 51.3%, which was the highest reading since February 6, 2003 (51.4%). Neutral sentiment is above its historical average of 31.0% for the 17th consecutive week. Last year, neutral sentiment was above average every week except for two.
Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 14.6 percentage points to 38.3%. The jump follows last week’s large drop to 23.6%, but only puts pessimism at a three-week high. Bearish sentiment has been above its historical average of 30.0% during three out of the last four weeks.
Optimism is at an unusually low level for the fourth consecutive week. Unusually low levels of bullish sentiment (defined as being more than one standard deviation below the historical average) have historically been associated with above-average returns for the S&P 500 over the following six- and 12-month periods. There is no guarantee that history will repeat, however.
The rough start to 2016, China and escalating tensions in the Middle East are all impacting individual investors’ short-term outlook. The above-average and often high levels of neutral sentiment recorded last year occurred during what was a mixed year for the major indexes, with more S&P 1500 Super Composite stocks falling rather than increasing in price.
This week’s AAII Sentiment Survey results:
- Bullish: 22.2%, down 2.9 percentage points
- Neutral: 39.6%, down 11.7 percentage points
- Bearish: 38.3%, up 14.6 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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