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AAII Sentiment Survey: Pessimism Rises to a 3-Month High

Pessimism among individual investors about the short-term direction of stock prices is at a three-month high, according to the latest AAII Sentiment Survey. Even with the increase, bearish sentiment remains below its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged by 10.7 percentage points to 41.0%. This is a three-week low. The drop was not large enough to keep optimism from staying above its historical average of 39.0% for the 20th time in 22 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.3 percentage points to 31.3%. The increase puts neutral sentiment back above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked by 8.4 percentage points to 27.7%. The level of pessimism is the highest seen since October 16, 2014 (33.7%). Even with the big upward move, bearish sentiment remains below its historical average of 30.5% for the 12th consecutive week. Last year (2014), there were 43 weeks with a below-average reading for bearish sentiment.

The stock market’s weak start to the new year had a notable impact on individual investors’ short-term outlook. Geopolitical events, the impact of falling oil prices on energy stocks, a sense that prevailing valuations for other stocks are too high, the pace of economic growth and worries that an even larger decline in stock prices could occur are causing some AAII members to be cautious or pessimistic. Other AAII members remain encouraged by the overall upward momentum of stock prices, falling energy prices, earnings growth and sustained economic expansion.

This week’s AAII Sentiment Survey results:

  • Bullish: 41.0%, down 10.7 percentage points
  • Neutral: 31.3%, up 2.3 percentage points
  • Bearish: 27.7%, up 8.4 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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