Pessimism about the short-term direction of the stock market is at its highest level in six months. The latest AAII Sentiment Survey also shows optimism among individual investors falling to an unusually low level.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.0 percentage points to 28.0%. Bullish sentiment was last lower on July 4, 2018 (27.9%). Bullish sentiment is below its historical average of 38.5% for a third consecutive week and the sixth time in the last seven weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, is unchanged at 31.0%. Neutral sentiment is above its historical average of 31.0% for the 34th time in the past 36 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 6.0 percentage points to 41.0%. Pessimism was last higher on April 11, 2018 (42.8%). Pessimism is above its historical average of 30.5% for the sixth time in the last seven weeks.
As stated above, optimism is at an unusually low level, though barely. At the same time, pessimism is at an unusually high level. Bullish sentiment readings that are more than one standard deviation below their historical average (currently less than 28.1%) have mostly been followed by higher-than-average six- and 12-month returns for the S&P 500 index.
The majority of the responses to this week’s survey were recorded before yesterday’s drop. Our survey period runs from Thursday through Wednesday with reminder emails to take the survey sent to a rotating group of AAII members each Monday.
Some AAII members had been anticipating a decline in stock prices prior to the recent downward volatility; whether the pullback is steep enough to prompt them to act remains to be seen. Tariffs and the possibility of an escalating trade war remain front and center on the minds of many individual investors. Also influencing sentiment are Washington politics (including President Donald Trump), midterm elections, economic growth, valuations and corporate profits.
This week’s AAII Sentiment Survey results:
- Bullish: 28.0%, down 6.0 percentage points
- Neutral: 31.0%, no change
- Bearish: 41.0%, up 6.0 percentage points
- 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.
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