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

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Pessimism among individual investors about the short-term direction of stock prices rose to a three-month high in the latest AAII Sentiment Survey. Neutral sentiment also rose, while optimism fell to its lowest level since early August.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.4 percentage points to 35.4%. The drop puts optimism at its lowest level since August 7, 2014 (30.9%). It also ends a seven-week streak of bullish sentiment readings above the historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.7 percentage points to 33.7%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.7 percentage points to 30.9%. This is the highest level of pessimism registered by our survey since August 7, 2014 (38.2%). The historical average is 30.5%.

Pessimism has risen by a cumulative 7.9 percentage points over the past two weeks as the S&P 500 has retreated from its recent highs. Though individual investors felt more cautious this week, it should be pointed out that this is just the eighth time in the past 12 months that pessimism is above its historic average.

In addition to the recent weakness in stock prices, prevailing valuations, events in the Middle East and Ukraine, the pace of economic growth and Washington politics are weighing on investors’ moods. Keeping other individual investors optimistic about the short-term direction of stock prices is the S&P 500’s overall upward momentum, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases.

This week’s AAII Sentiment Survey results:

  • Bullish: 35.4%, down 6.4 percentage points
  • Neutral: 33.7%, up 3.7 percentage points
  • Bearish: 30.9%, up 2.7 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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