AAII Sentiment Survey: Optimism Falls to an 8-Week Low

Posted on July 24, 2014 | AAII Survey

Pessimism about the short-term direction of stock prices rose to a three-month high in the latest AAII Sentiment Survey. Optimism continued to fall, while neutral sentiment extended its streak of above-average readings to 29 weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 2.7 percentage points to 29.6%. This is an 11-week low. It is also the 17th time in the past 19 weeks that optimism is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.3 percentage points to 40.4%. As noted above, the increase puts neutral sentiment above its historical average of 30.5% for the 29th consecutive week. This is the third-longest streak of readings over 30.5% for neutral sentiment in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.5 percentage points to 29.9%. This is the highest level of pessimism recorded by our survey since April 17, 2014. Nonetheless, bearish sentiment remains below its historical average of 30.5% for the 14th straight week and the 37th out of the last 41 weeks.

Neutral sentiment is back up to unusually high levels (more than one standard deviation above its historical average) for the first time in a month. Historically, unusually high neutral sentiment readings have been followed by better-than-average market performance over the proceeding six and 12-month periods. The link is not causal, however.

The bull-bear spread (the difference between bullish and bearish sentiment) turned negative for the first time since early May. The shift follows last Thursday’s 1.2% drop in the S&P 500, which was the biggest one-day drop since April. Though stock prices have rebounded since then, the decline came at a time when many individual investors have concerns about valuations. Some AAII members are also fretting about the events in the Middle East and Ukraine, the pace of economic growth and Washington politics. Other AAII members remain optimistic about sustained economic growth, the market’s upward trend and the Federal Reserve’s tapering of bond purchases.

This week’s AAII Sentiment Survey results:

  • Bullish: 29.6%, down 2.7 percentage points
  • Neutral: 40.4%, up 1.3 percentage points
  • Bearish: 29.9%, up 1.5 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.



Mixed Opinions on Whether Stocks Are Excessively Overvalued

Posted on July 24, 2014 | AAII Survey

This week’s AAII Sentiment special question asked AAII members what sectors or segments they think are excessively overvalued right now. Responses were very mixed. Slightly less than a quarter of all respondents (24%) said either no segment is excessively overvalued or that the overall market is fairly valued right now. About 13% view social media and Internet companies as being excessively overvalued. Technology was named by 12%. Financials and technology were each listed by 9% of respondents. (Some respondents named more than one sector or industry group.)



AAII Sentiment Survey: Optimism Falls to an 8-Week Low

Posted on July 17, 2014 | AAII Survey

Individual investor optimism about the short-term direction of stock prices fell to an eight-week low in the latest AAII Sentiment Survey. Neutral sentiment rebounded to the upper end of its typical range, while pessimism declined slightly.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.3 percentage points to 32.4%. This is an eight-week low. This is also the 16th time in the past 18 weeks that optimism is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 5.5 percentage points to 39.2%. This puts neutral sentiment above its historical average of 30.5% for the 28th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.2 percentage points to 28.5%. The decline puts pessimism below its historical average of 30.5% for the 13th straight week and the 36th out of the last 40 weeks.

Neutral sentiment is right at the upper end of its typical range. Readings above 39.4% are considered to be unusually high (more than one standard deviation away from average.) The current 28-week streak of above-30.5% readings for neutral sentiment ties a similar streak from 1993 for the third-longest in the survey’s history. The only longer such streaks were an 82-week stretch between 1987 and 1988, and a 65-week stretch between 1997 and 1998.

Uncertainty about the short-term direction of stock prices, combined with a backdrop of concerns about prevailing valuations, a wait-and-see approach about second-quarter earnings, and, for some individual investors, rising tensions in the Middle East all likely played a role in boosting neutral sentiment and lowering optimism. Some AAII members remain optimistic about sustained economic growth, the market’s upward trend, and the Federal Reserve’s tapering of bond purchases. Others fret about the pace of economic growth, prevailing valuations, events in the Middle East and Ukraine, and frustration with Washington politics.

This week’s AAII Sentiment Survey results:

  • Bullish: 32.4%, down 5.3 percentage points
  • Neutral: 39.2%, up 5.5 percentage points
  • Bearish: 28.5%, down 0.2 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



Half of Investors Say Market Outlook Is Unchanged by Middle East Turmoil

Posted on July 17, 2014 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members what type of impact, if any, the current events in the Middle East are having on their six-month outlook for stock prices. Nearly half of respondents (49%) said the events so far were either not impacting or having a very small impact on their outlook. Slightly more than one out of five respondents (21%) said the events were either causing them to reduce their expectations about how stocks will perform or were a cause for concern. Just 12% said they were more bearish because of the events in the Middle East. Some members noted that their outlooks would change if geopolitical events worsened.

Here is a sampling of the responses:

  • “None. There is always something going on somewhere. I just tune it out.”
  • “I would expect oil and gas prices to go up, creating a slight drag on the economy.”
  • “Currently none, but things can change quickly over there.”
  • “Some concern changing my sentiment on the market from bullish to neutral.”
  • “Major impact due to possibilities of expanded conflicts.”


AAII Sentiment Survey: Pessimism Jumps to a Two-Month High

Posted on July 10, 2014 | AAII Survey

Pessimism about the short-term direction of stock prices is at its highest level in two months, according to the latest AAII Sentiment Survey. Neutral sentiment is at a four-month low, while optimism is only slightly lower than a week ago.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.9 percentage points to 37.6%. Optimism is below its historical average of 39.0% for the 15th time in the past 17 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 5.4 percentage points to 33.7%. This is the lowest neutral sentiment has been since March 13, 2014. Even with the decline, neutral sentiment remains above its historical average of 30.5% for the 27th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped by 6.3 percentage points to 28.7%. This is the largest amount of pessimism recorded by our survey since May 8, 2014. Even with the rise, bearish sentiment remains below its historical average of 30.5% for the 12th straight week and the 35th out of the last 39 weeks.

Though there was a significant weekly increase in pessimism and a decrease in neutral sentiment, the changes simply moved each measure of sentiment closer to its historical average. The shifts occurred as the S&P 500 fell 1.1 percentage points over two consecutive trading sessions during the survey period and tensions in the Middle East escalated. These two events, combined with concerns about prevailing valuations, likely caused more investors to fret about the potential for a downward market move occurring over the short term.

At the aggregate level, some AAII members are optimistic about sustained economic growth, the market’s upward trend, and the Federal Reserve’s tapering of bond purchases. Others are concerned about the pace of economic growth, prevailing valuations, events in the Middle East and Ukraine, and frustration with Washington politics.

This week’s AAII Sentiment Survey results:

  • Bullish: 37.6%, down 0.9 percentage points
  • Neutral: 33.7%, down 5.4 percentage points
  • Bearish: 28.7%, up 6.3 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



Investor Sentiment Largely Unaffected by Market Complexity

Posted on July 10, 2014 | AAII Survey

This week’s Sentiment Survey special question asked AAII members how the complexity of the way market orders are processed is affecting their attitude towards investing. The majority of respondents (60%) said the complexity is having no effect. An additional 16% of respondents said the complexity is only having a small or a limited impact. Only 12% of respondents said they felt as if they were at a disadvantage or say their attitudes are adversely affected by the manner in which orders are processed. More than 10% of all respondents clarified their responses by describing themselves as long-term investors, not traders. Another 8% of respondents said they are using limit orders instead of market orders. Here is a sampling of the responses:

  • “Since I do very little short-term trading, the complexity of the buy and sell process impacts my attitude towards investing quite minimally.”
  • “Not at all. I am a long-term investor and don’t think that the effects of the process are very significant for the long-term results.”
  • “Not at all. I know I lose, but not too much each time.”
  • “A small effect, but I’ve changed to using limit orders where possible.”
  • “It makes me feel as if ‘the deck is stacked’ against small retail investors.”

 



Individual Investor Optimism Rises to Three-Week High

Posted on July 3, 2014 | AAII Survey

Optimism among individual investors about the short-term direction of stock prices is at a three-week high, according to the latest AAII Sentiment Survey. Pessimism also rose slightly, while neutral sentiment extended its streak of above-average readings.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.3 percentage points to 38.5%. Even with the improvement, optimism remains below its historical average of 39.0% for the 14th time in the past 16 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 2.6 percentage points to 39.1%. This is the 26th consecutive week that neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.3 percentage points to 22.4%. This is the 11th straight week and the 34th out of the last 38 weeks with pessimism below its historical average of 30.5%.

The slight increase in pessimism follows what was a six-month low in bearish sentiment. Neutral sentiment remains at high levels, though it is now just below the upper border of what we would we consider to be an unusually high reading (39.4%). Keeping some AAII members optimistic is sustained economic growth, the market’s upward trend, and the Federal Reserve’s tapering of bond purchases. Discouraging some AAII members is the pace of economic growth, prevailing valuations, events in Iraq and Ukraine, and frustration with Washington politics.

This week’s AAII Sentiment Survey:

  • Bullish: 38.5%, up 1.3 percentage points
  • Neutral: 39.1%, down 2.6 percentage points
  • Bearish: 22.4%, up 1.3 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.



Four Market Traits AAII Members Would Change

Posted on July 3, 2014 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members about the one thing they would change about the current market environment if they had a magic wand to do so. Responses were varied, though they primarily fell into one of four categories. The largest number of respondents (18%) said they would alter monetary policy or raise interest rates. This group also includes respondents who want to know how the Federal Reserve intends to end monetary stimulus. The second-largest group (17%) said they would alter Washington politics. These changes include the politicians themselves, regulations or the tax code. About 14% would change the market environment. Some would reduce current valuations, while others said they would end high-frequency trading or dark pools. Changing the pace of economic growth came in fourth, with about 9% of respondents saying they would accelerate it.

Here is a sampling of the responses:

  • “Speaking selfishly, stock prices should come down to earth.”
  • “Get better clarity from the Fed on how they are going to unwind quantitative easing.”
  • “I’d stop the high-frequency trading.”
  • “Continued improvement in real job growth.”
  • “Have the Fed raise interest rates sooner.”


Fixed-Income Allocations Rebound to a Four-Month High

Posted on July 1, 2014 | AAII Survey

Individual investors’ fixed-income allocations rose to a four-month high last month, according to the June AAII Asset Allocation Survey. Equity allocations rose as well, while cash allocations pulled back.

Stock and stock fund allocations rebounded by 1.7 percentage points to 67.0%. This is the 15th consecutive month and the 17th out of the past 18 months with equity allocations above their historical average of 60%.

Bond and bond fund allocations rose 0.5 percentage points to 16.0%, the largest allocation since February 2014. The increase puts fixed-income allocations at their historical average of 16%.

Cash allocations fell 2.1 percentage points to 17.1%. The decline follows May’s eight-month high for cash allocations. June’s decline puts cash allocations below their historical average of 24% for the 31st consecutive month.

Both equity and bond allocations have been fairly stable during the first six months of the year. Since January 2014, stock and stock fund allocations have fluctuated within a 1.9-percentage-point range, while bond and bond fund allocations have fluctuated within a 1.5-percentage-point range. The lack of a big change in allocations is not surprising given the trend we’ve been seeing in the AAII Sentiment Survey and the decline in bond yields. Neutral sentiment toward the direction of stock prices has been above its historical average of 30.5% for 25 consecutive weeks. Yields on the 10-year Treasury note have been trending downward throughout the year and ended June near a 12-month low. While individual investors are neither signaling optimism nor pessimism about the six-month direction of stock prices, prevailing low yields are not making bonds and cash attractive alternatives.

This month’s special question asked AAII members what they are doing to get portfolio income. More than half (53%) said they are holding dividend-paying stocks. Nearly a quarter (23%) said they are using bonds or bond funds for income purposes. Several of these respondents said they are using bond ladders. Approximately 7% realize income from REITs and a nearly even number are using master limited partnerships (MLPs). A sizeable portion (13%) of respondents said they are not doing anything. Many of these members are either still employed or receive pension income.

June asset allocation survey results:

  • Stocks and Stock Funds: 67.0%, up 1.7 percentage points
  • Bonds and Bond Funds: 16.0%, up 0.5 percentage points
  • Cash: 17.1%, down 2.1 percentage points

June Asset Allocation Survey details:

  • Stock Funds: 32.4%, up 2.2 percentage points
  • Stocks: 34.6%, down 0.5 percentage points
  • Bond Funds: 12.8%, up 1.0 percentage points
  • Bonds: 3.2%, down 0.5 percentage points

Historical Averages:

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 16%
  • Cash: 24%

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.



AAII Sentiment Survey: Pessimism Falls to a Six-Month Low

Posted on June 26, 2014 | AAII Survey

Pessimism among individual investors is now at a six-month low, according to the latest AAII Sentiment Survey. Neutral sentiment remains at an unusually high level, while optimism is slightly below its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.0 percentage points to 37.2%. The rebound is not big enough to keep optimism from being below its historical average of 39.0% for the 13th time in the past 15 weeks, however.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, edged up 1.0 percentage points to 41.7%. This is the seventh time in nine weeks that neutral sentiment is above 40%. Neutral sentiment is also above its historical average of 30.5% for the 25th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.0 percentage points to 21.1%. This is the lowest level of pessimism registered in our survey since December 26, 2013 (18.5%). The decline keeps bearish sentiment below its historical average of 30.5% for the 10th straight week and the 33rd out of the last 37 weeks.

Despite hitting a six-month low, bearish sentiment remains within its typical range. It is near the bottom of the typical range, however. Historically, unusually low levels of bearish sentiment have been followed by only slightly weaker-than-average market performance (an average 26-week return of 4.0% for the S&P 500 versus 4.4% for all weeks since September 1987).

Neutral sentiment is above its typical range (more than one standard deviation above average) for the second consecutive week. Historically, unusually high levels of neutral sentiment have been followed by better-than-average S&P 500 returns (an average six-month gain of 7.2%). The historical results of unusually high and low AAII Sentiment readings can found in this month’s AAII Journal.

The ongoing streak of 25 consecutive weeks with neutral sentiment readings above 30.5% is the fourth-longest in the survey’s history. The only longer such streaks were an 82-week stretch in 1987 and 1988, a 65-week stretch in 1997 and 1998 and a 28-week stretch in 1993.

This week’s AAII Sentiment Survey results:

  • Bullish: 37.2%, up 2.0 percentage points
  • Neutral: 41.7%, up 1.0 percentage points
  • Bearish: 21.1%, down 3.0 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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