Members Stay the Course Through Sentiment Shifts

Posted on July 30, 2015 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members how much changes in sentiment towards the stock market impact their portfolio decisions. Approximately 33% said changes in sentiment have no impact and an additional 35% said that sentiment changes have not much or very little impact. Adherence to a long-term investment strategy was the most common reason given as to why. Some respondents said that they focus on other indicators. Slightly more than 17% of all respondents said they consider sentiment when making portfolio decisions, with several saying that they use it as a contrarian indicator.

Here is a sampling of the responses:

  • “I don’t follow changes in sentiment, only my own.”
  • “Little impact to my portfolio decisions as I am a long-term, buy-and-hold investor.”
  • “None. I stick to my plan in good times and bad.”
  • “Not too much when positive, but it helps identify bottoms when extremely negative.”
  • “Large shifts in the AAII surveys get my attention and motivate me to review my portfolio allocations.”


AAII Sentiment Survey: Pessimism Surges Close to a Two-Year High

Posted on July 30, 2015 | AAII Survey

Pessimism surged to its highest level in nearly two years in the latest AAII Sentiment Survey. Optimism plunged, while neutral sentiment fell below 40% for the first time since April.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged by 11.4 percentage points to 21.1%. The drop puts optimism at a seven-week low. This is the 21st consecutive week with bullish sentiment below its historical average of 39.0%, the longest such streak since a 29-week stretch in 1993. Readings below 28.5% are considered to be unusually low.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.7 percentage points to 38.2%. This is the first time neutral sentiment has been below 40% since April 2, 2015 (32.6%), ending a record 16-week streak. The decline is not large enough to keep neutral sentiment from staying above its historical average of 31.0% for a 30th consecutive week, however.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked 15.1 percentage points to 40.7%. Pessimism was last higher on August 22, 2013 (42.9%). The historical average is 30.0%. Readings above 40.1% are considered to be unusually high.

This week’s jump in pessimism is the largest one-week surge since a 26.3-point rise on April 11, 2013. It puts bearish sentiment above 40% for only the fourth time since November 2012. The rise comes as the major stock indexes fell during much of the survey period. This is also the fourth time in eight weeks that bearish sentiment has been above its historical average after spending much of the previous 12 months below 30%.

The link between unusually high levels of pessimism and above-average returns for the S&P 500 is not as strong as the link between unusually low levels of optimism and higher market returns. For the period of June 24, 1987 through May 7, 2015, the S&P 500 has had a median six-month gain of 5.6% following unusually high bearish sentiment readings. Over the same period, the large-cap index has a median six-month gain of 7.1% following unusually low bullish sentiment readings. These numbers compare to a median six-month gain of 5.3% for all rolling six-month periods over the timespan analyzed. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee that history will repeat.)

Causing many AAII members to be cautious are concerns about the possibility of a sizeable decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Keeping some AAII members optimistic is the Federal Reserve’s still-accommodative monetary policy, the ongoing bull market, sustained economic expansion and earnings growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 21.1%, down 11.4 percentage points
  • Neutral: 38.2%, down 3.7 percentage points
  • Bearish: 40.7%, up 15.1 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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.



Individual Investors Split on Attractiveness of Energy Stocks

Posted on July 23, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members for their opinion on energy stocks. The majority of respondents were split into buy/attractive and sell/avoid camps. Nearly 37% thought energy stocks are getting attractive or are otherwise cheap. A large number of these respondents clarified their statements by saying energy stocks are attractive as long-term investments, but may not rise much over the short term. Slightly more than 39% of respondents said that energy stocks should be sold or otherwise avoided. Some cited expectations for further downside, while others pointed to excess levels of oil inventories. About 5% of respondents thought energy stocks rate as a hold right now. The possibility of Iran selling oil worldwide was also noted by some respondents as creating additional uncertainty for oil stocks.

Here is a sampling of responses:

  • “I am not purchasing new shares as I believe that the energy market is in a state of flux.”
  • “They will be a buy later; we need to see another dip.”
  • “Beaten down badly, likely a buying opportunity.”
  • “Energy stocks are down to a level that makes them a long-term buy, but in the short term they have further to fall.”
  • “I feel there are further declines coming.”
  • “It’s a good buying opportunity for selected energy stocks.”


AAII Sentiment Survey: Optimism Rises to A Four-Week High

Posted on July 23, 2015 | AAII Survey

Optimism rose to a four-week high in the latest AAII Sentiment Survey. Pessimism also rose, as neutral sentiment fell to a five-week low.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.7 percentage points to 32.5%. This is the first time optimism has been above 30% on consecutive weeks since April 30, 2015. Even with the increase, bullish sentiment remains below its historical average of 39.0% for a 20th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 4.1 percentage points to 41.9%. This is the lowest neutral sentiment has been since June 18, 2015 (40.3%). The drop is not large enough to prevent neutral sentiment from staying above its historical average of 31.0% for a 29th consecutive week and above 40% for a record 16th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 2.4 percentage points to 25.6%. The historical average is 30.0%.

The recent rise in large-cap stocks, including the record high set by the NASDAQ earlier this week, has helped to make some individual investors more optimistic. Since the beginning of July, bullish sentiment has rebounded by a cumulative 9.9 percentage points. The level of optimism remains low by historical standards, however, as bullish sentiment has not been above its historical average since March 5, 2015.

Keeping some AAII members optimistic is the Federal Reserve’s still-accommodative monetary policy, the ongoing bull market, sustained economic expansion and earnings growth. Causing some AAII members to be cautious are concerns about the possibility of a sizeable decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events.

This week’s AAII Sentiment Survey results:

  • Bullish: 32.5%, up 1.7 percentage points
  • Neutral: 41.9%, down 4.1 percentage points
  • Bearish: 25.6%, up 2.4 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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.



AAII Sentiment Survey: Bullish Sentiment Rises Above 30%

Posted on July 16, 2015 | AAII Survey

Bullish sentiment rose above 30% for just the second time since April in the latest AAII Sentiment Survey. The rebound occurred as bearish sentiment fell for a second consecutive week. Neutral sentiment, meanwhile, tied a 27-year record for the most consecutive weeks of staying at or above 40%.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.9 percentage points to 30.8%. The rebound puts optimism up into the lower level of its typical range. Even with the increase, bullish sentiment remains below its historical average of 39.0% for a 19th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.0 percentage points to 45.9%. The increase keeps neutral sentiment above its historical average of 31.0% for the 28th consecutive week and at an unusually high level for a 15th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell by 5.9 percentage points to 23.2%. This was the second consecutive weekly decline of 5.9 percentage points. The historical average is 30.0%.

Pessimism has declined by a cumulative 11.8 percentage points since hitting a 2015 high of 35.1% on July 1, 2015. Over the same period, optimism has risen by 8.2 percentage points. The moves have occurred as the S&P 500 has established a near-term bottom and subsequently rebounded.

As noted above, this is the 15th consecutive week with a neutral sentiment reading above 40%. This ties a record set between November 13, 1987, and March 4, 1988, for consecutive weeks where neutral sentiment is at or above 40%. Unusually high readings of neutral sentiment (currently above 39.6%) have been associated with better-than-average returns for the S&P 500. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee, however, that history will repeat.)

Keeping some AAII members optimistic is the Federal Reserve’s still-accommodative monetary policy, the ongoing bull market, sustained economic expansion and earnings growth. Causing some AAII members to be cautious are concerns about the possibility of a bigger decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events.

This week’s AAII Sentiment Survey results:

  • Bullish: 30.8%, up 2.9 percentage points
  • Neutral: 45.9%, up 3.0 percentage points
  • Bearish: 23.2%, down 5.9 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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.



AAII Members Unconcerned About Chinese Market Drop

Posted on July 16, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members whether, and why or why not, their short-term outlook for U.S. stocks was affected by the recent drop in Chinese stocks. Nearly three-fourths (74%) of all respondents said the June/early July drops in the Shanghai and Shenzhen exchanges have not impacted their short-term expectations for how U.S. stocks will perform. Reasons given were mixed, though many said they do not invest in Chinese stocks, view the Chinese markets as having a low correlation with the U.S. markets or that Chinese stocks had a big upward run before the recent plunge. Others simply said that they follow a long-term investment strategy.

About 18% of respondents said they are more cautious about U.S. stocks following the price drop in Chinese stocks. Their concerns include a slowing of U.S. economic growth caused by China and the potential for a negative, spillover effect on U.S. stock markets.

Here is a sampling of the responses:

  • “Chinese stocks have risen so much, it’s not surprising that they would take a few steps backwards at some point.”
  • “I’m not a short-term outlook type of guy. I prefer to stay the course, barring disasters.”
  • “I refuse to invest in China due to the political influence of the Chinese government.”
  • “It seems that over the long term, U.S. stocks react more profoundly to domestic economic news.”
  • “The Chinese slowdown will have a negative impact due to the number of U.S. companies that do significant business in China.”


Low Large-Cap Volatility Leaves Members With Mixed Opinions

Posted on July 9, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they thought about the limited volatility experienced by the large-cap U.S. indexes during the second-quarter. Responses were very mixed. The largest group of responses (14%) believe the decline in volatility is a precursor to a downward move in stocks. A nearly equal number (also about 14%) pointed to a lack of catalysts to move stock prices in either direction. Nearly 9% said the lack of volatility is not influencing how they view stocks. The uncertainty of when the Federal Reserve will begin to raise rates was cited by 7% of respondents. Slightly more than 6% said the low volatility will not last, though they are unsure in what direction stock prices will move. An additional 6% viewed the lack of volatility as a positive sign. Five percent perceive the market or the individual stocks they own as having been volatile.

Here is a sampling of the responses:

  • “I don’t think it’s important to what happens to stocks moving forward.”
  • “Few alternatives for return, but investors are not overly anxious to increase their position in equities.”
  • “I thought there was plenty of volatility and I would not have wanted more.”
  • “The market seems to be consolidating, but what direction is the next major move?”
  • “It is setting us up for a 10% to 15% correction.”
  • “No one knows what to do.”


AAII Sentiment Survey: Neutral Sentiment Above 40% for 14th Consecutive Week

Posted on July 9, 2015 | AAII Survey

Neutral sentiment remained above 40% for a 14th consecutive week in the latest AAII Sentiment Survey. Additionally, optimism rebounded as pessimism pulled back from last week’s 2015 high.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 5.3 percentage points to 27.9%, a three-week low. The large drop keeps optimism at an unusually low level for the ninth time in 10 weeks. This is also the 18th consecutive week with a bullish sentiment reading below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, edged up 0.6 percentage points to 42.9%. The increase keeps neutral sentiment above its historical average of 31.0% for the 27th consecutive week and at an unusually high level for a 14th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 5.9 percentage points to 29.2%. The historical average is 30.0%.

The current 14-week streak of neutral sentiment readings at or above 40% (readings above 39.6% are unusually high) is the first such streak since July 8 through October 21, 1988. If neutral sentiment is at or above 40% next week it would tie the record set between November 13, 1987 and March 4, 1988.

Optimism is also in the midst of a notable streak. The current stretch of 18 consecutive weeks with below-average readings is the longest since a 20-week stretch between April 5 and August 16, 2012.

Notable upward and downward moves in bullish and bearish sentiment have been occurring over the past few weeks as the S&P 500 has been showing signs of becoming more volatile. Greece is at the forefront of some individual investors’ minds, as we are seeing it mentioned with a greater frequency in response to the survey’s special questions. The timing and magnitude of a change in U.S. monetary policy is still taking precedence, as we noted last week. Contributing to bearish sentiment are concerns about the possibility of a bigger decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Contributing to bullish sentiment (in addition to still-accommodative monetary policy) are the ongoing bull market, sustained economic expansion and earnings growth.

This week’s AAII Sentiment Survey results:

  • Bullish: 27.9%, up 5.3 percentage points
  • Neutral: 42.9%, up 0.6 percentage points
  • Bearish: 29.2%, down 5.9 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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.



Members Cite U.S. Monetary Policy, Greece as Future Market Movers

Posted on July 2, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they thought would most influence the direction of stock prices over the second of half this year. Responses were mixed, with many AAII members listing more than one factor or event. Nearly one out of every three respondents (32%) said a potential change in U.S. monetary policy or a corresponding change in interest rates. Greece and the eurozone was a close second, named by about 28% of respondents. Nearly 15% of respondents said economic growth while more than 13% said corporate earnings.

Here is a sampling of the responses:

  • “The Federal Reserve’s position on raising interest rates and global economic events.”
  • “If/when the Fed tightens and the Greek situation.”
  • “Earnings always seem to be the main driver.”
  • “The improving economic outlook in the United States.”
  • “Downturn in China, the Greece-euro crisis and unrest in the Middle East.”


AAII Sentiment Survey: Pessimism Rebounds to Its Highest Level of 2015

Posted on July 2, 2015 | AAII Survey

Pessimism rebounded strongly, reaching a new high for the year, in the latest AAII Sentiment Survey. At the same time bullish sentiment plunged back to an unusually low level, while neutral sentiment remained above 40%.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 12.9 percentage points to 22.6%, a three-week low. The large drop puts optimism at an unusually low level for the eighth time in nine weeks. This is also the 17th consecutive week with a bullish sentiment reading below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, slipped 0.5 percentage points to 42.3%. Even with the modest decline, neutral sentiment remains above its historical average of 31.0% for the 26th consecutive week and at an unusually high level for a 13th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 13.4 percentage points to 35.1%. The jump puts pessimism at its highest level since August 7, 2014 (38.2%). The historical average is 30.0%.

Even with this week’s jump, pessimism remains well within its typical historical range. Bearish sentiment was last at an unusually high level (above 40.1%) on August 22, 2013 (42.9%).

Monday’s large drop in the large-cap indexes occurred at the same time we sent out a weekly reminder email to take the survey. (We send out a reminder to a rotating group of AAII members each week.) The ongoing crisis in Greece is also having an impact, as can be seen in the responses to this week’s special question. This week’s events follow ongoing concerns some AAII members have had about the possibility of a bigger decline in stock prices occurring, the pace of economic growth, the lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

The current 13-week streak of neutral sentiment readings at or above 40% is the longest since 1988. Neutral sentiment readings above 39.6% are unusually high (more than one standard deviation above average). As noted above, optimism is back at an unusually low level. Both such occurrences have typically been followed by better-than-average six- and 12-month returns for the S&P 500. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee, however, that history will repeat.)

This week’s AAII Sentiment Survey:

  • Bullish: 22.6%, down 12.9 percentage points
  • Neutral: 42.3%, down 0.5 percentage points
  • Bearish: 35.1%, up 13.4 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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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