AAII Sentiment Survey: Pessimism Surges Above 40%


Pessimism among individual investors about the short-term direction of stock prices is above 40% for just the second time this year. The latest AAII Sentiment Survey also shows a large drop in optimism and a decrease in the percentage of investors describing their outlook as neutral.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 10.3 percentage points to 28.4%. Optimism was last at this level on May 2, 2018 (also 28.4%). The drop puts bullish sentiment below its historical average of 38.5% for just the second time in the past six weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 4.4 percentage points to 30.7%. This is the lowest reading since February 14, 2018 (30.1%). Nonetheless, neutral sentiment remains above its historical average of 31.0% for the 19th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, surged 14.6 percentage points to 40.8%. Pessimism was last higher on April 11, 2018 (42.8%). The rise ends a streak of 10 consecutive weekly readings below the historical average of 30.5%.

Year-to-date, pessimism has only been above its historical average five times (including this week’s reading). Optimism has been above its respective historical average just 11 times. Neutral sentiment has been the one comparative constant, registering above its historical average 19 times (and above 30% during 21 out of the first 26 weeks of this year).

At its current level, pessimism is unusually high (more than one standard deviation above its historical average). Historically, the six-month returns for the S&P 500 index have only been slightly above their historical average following such readings. Optimism is still within its typical historical range, albeit not by much. The breakpoint between typical and unusually low bullish sentiment is 28.1%.

This week’s shift in sentiment follows declines in both the Nasdaq composite and the Russell 2000 index from their recent highs. Many—but not all—individual investors anticipate continued volatility and/or think that the current political backdrop could have a further impact on the stock market. Trade policy is influencing some individual investors’ sentiment as well. While many approve of the Federal Reserve’s plan to continue gradually raising interest rates, some AAII members are concerned about the impact that rising rates will have. Also influencing sentiment are valuations, tax cuts, earnings growth and economic growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 28.4%, down 10.3 percentage points
  • Neutral: 30.7%, down 4.4 percentage points
  • Bearish: 40.8%, up 14.6 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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