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AAII Sentiment Survey: Pessimism Rises to Second Highest Level of 2017

Pessimism among individual investors about the short-term outlook for stocks is at its second-highest level of the year. The latest AAII Sentiment Survey also shows higher neutral sentiment and unusually low optimism.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.1 percentage points to 25.0%. Optimism was last lower on May 17, 2017 (23.9%). This is the 27th consecutive week and the 32nd time out of the last 33 weeks that bullish sentiment is below its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.5 percentage points to 35.1%. The rise keeps neutral sentiment above its historical average of 31.0% for the 18th consecutive week and the 23rd time out of the last 24 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.6 percentage points to 39.9%. Pessimism was last higher on March 8, 2017 (46.5%). This is the fifth consecutive week with a bearish sentiment reading above its historical average of 30.5%.

Pessimism climbed throughout August, rising by a cumulative 15.6 percentage points. At its current level, bearish sentiment is at the top of its typical range. Readings above 40.0% are considered to be unusually high (more than one standard deviation above its historical average).

Optimism, however, is now below its typical range. Historically, the S&P 500 has generally realized above-average six- and 12-month returns following unusually low bullish sentiment readings. There is no guarantee that history will repeat.

Political drama in Washington, concerns about perceived high valuations and the possibility of a pullback are combining to dampen the short-term expectations for stock prices that are held by many individual investors. The market’s relative weakness over the past few weeks is also likely playing a role. Some investors, however, are encouraged by continuing economic and earnings growth as well as the record highs set by the large-cap indexes this year. It’s unclear what impact Hurricane Harvey had on this week’s results, though a few members did specifically mention the storm in response to this week’s special question.

This week’s AAII Sentiment Survey results:

  • Bullish: 25.0%, down 3.1 percentage points
  • Neutral: 35.1%, up 1.5 percentage points
  • Bearish: 39.9%, up 1.6 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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