Responses to Fed Language Change Very Mixed

Posted on March 26, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they thought about the Federal Open Market Committee removing the “patient” language from its recent meeting statement. Responses were very mixed. The largest group of respondents, 25%, agreed with or otherwise approved of the message. Several of thought the Fed was purposely trying to avoid surprising market participants or was being conscious of the impact that an unexpected change in monetary policy would have on the markets. Slightly less than 24% of all respondents said the change in wording was not significant. About 10% disapproved of the meeting statement and/or current monetary policy. Roughly 9% thought interest rates should be raised. An additional 9% said a rate hike is forthcoming, while 6% said they were expecting the wording change in last week’s meeting statement.

Here is a sampling of the responses:

  • “All of this parsing of words tells me that [the Fed] is doing a good job and not trying to stampede the crowd in either direction.”
  • “I think it is about time that they raise interest rates. The economy has been doing well enough to have interest rates raised.”
  • “Big mistake. The so-called recovery is very fragile.”
  • “Gobbledygook. Fedspeak is right up there with doublespeak.”
  • “Simply one step closer to raising the interest rate.”


AAII Sentiment Survey: Optimism Rebounds

Posted on March 26, 2015 | AAII Survey

Optimism about the short-term direction of stock prices rebounded, but remains below its historical average in the latest AAII Sentiment Survey. Both neutral sentiment and bearish sentiment pulled back from last week’s readings.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 11.3 percentage points to 38.4%. Even with this week’s sizeable increase, optimism is below its historical average of 39.0% for the third consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 4.2 percentage points to 37.2%. Even with the decline, neutral sentiment remains above its historical average of 30.5% for the 12th consecutive week. This is the longest such streak since a 32-week stretch of above-average readings between January 9 and August 14, 2014.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 7.1 percentage points to 24.4%. The drop puts pessimism back below its historical average of 30.5% for the 42nd time out of the past 52 weeks.

Optimism rebounded back to near its historical average after falling to an unusually low level last week. Some individual investors reacted favorably to the Federal Open Market Committee’s decision to remove the “patient” language, as the responses to this week’s special question reveal. Differences in specific AAII members who participated in this week’s survey versus last week’s may have also impacted the shift in sentiment readings.

The recent price fluctuations, prevailing valuations, disappointing earnings or guidance from certain companies, geopolitical events, the pace of economic growth and worries that an even larger decline in stock prices could occur are weighing on some AAII members’ short-term market outlook. Keeping other AAII members encouraged is the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 38.4%, up 11.3 percentage points
  • Neutral: 37.2%, down 4.2 percentage points
  • Bearish: 24.4%, down 7.1 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.



P/E Ratio Commonly Relied On to Gauge Valuation

Posted on March 19, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what indicators they use to determine whether the stock market’s valuation is reasonable, too high or too low. More than half (55%) of respondents said they rely on the price-earnings (P/E) ratio. Many of these members said they specifically look at Robert Shiller’s cyclically adjusted price-earnings (CAPE) ratio. Various technical analysis measures are used by about 15% of respondents. A nearly equal number said they look at other indicators, such as economic data, interest rates and monetary policy. Some members said that they consider more than one indicator when assessing the market’s valuation.

 



AAII Sentiment Survey: Optimism Falls to a Two-Year Low

Posted on March 19, 2015 | AAII Survey

Optimism fell to a two-year low according to the latest AAII Sentiment Survey, a sign that individual investors have become more cautious about the short-term outlook for stocks. Pessimism rose to a five-week high, while neutral sentiment remained above 40% for a second consecutive week.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.4 percentage points to 27.2%. This week’s reading is tied with April 17, 2014, for the lowest level of optimism since April 2013. The drop puts bullish sentiment below its historical average of 39.0% on consecutive weeks for the first time since June 19 through August 7, 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined by 1.6 percentage points to 41.4%. Neutral sentiment remains above its historical average of 30.5% for the 11th consecutive week. This is the longest such streak since a 32-week stretch of above-average readings between January 9 and August 14, 2014.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 6.1 percentage points to 31.5%. This is a six-week high. It is also the first time pessimism is above its historical average of 30.5% since February 5, 2015.

Bullish sentiment is in the midst of a five-week, 19.8-percentage-point plunge. The drop has now put optimism at an unusually low level (more than one standard deviation below its historical average). At the same time, bearish sentiment has risen by a cumulative 13.6 percentage points.

Neutral sentiment remains at an unusually high level (more than one standard deviation above its historical average). Historically, both unusually low levels of bullish sentiment and unusually high levels of neutral sentiment have been correlated with better-than-average market performance over the following six- and 12-month periods.  (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.) There is no guarantee history will repeat in the future, however.

The change in sentiment has occurred as the S&P 500 index has experienced an increase in volatility, though the index ended yesterday essentially unchanged from its February 19, 2014, close. In addition to the recent price fluctuations, prevailing valuations, disappointing earnings or guidance from certain companies, geopolitical events, the pace of economic growth and worries that an even larger decline in stock prices could occur are weighing on AAII members’ short-term market outlook. Keeping some AAII members encouraged is the ongoing bull market, sustained economic expansion, earnings growth and still-accommodating monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 27.2%, down 4.4 percentage points
  • Neutral: 41.4%, down 1.6 percentage points
  • Bearish: 31.5%, up 6.1 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.



More Than 60% of Polled Investors Believe Bull Market Will Last

Posted on March 12, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members whether it is likely or unlikely that the current bull market will last into at least a seventh year. Half of all respondents said the bull market is likely to continue into a seventh year. An additional 11% of respondents think the odds of the bull market reaching a seventh year are somewhat likely. Reasons given for the upbeat outlook varied (earnings growth, price momentum, valuations, sentiment, etc.), though several respondents cited economic growth, accommodating monetary policy and the attractiveness of U.S. stocks relative to other investment options as influencing their outlook.

At the other end of the spectrum, 15% of respondents said it is unlikely and an additional 17% said it is somewhat unlikely for the bull market to last another year. Tightening monetary policy was the primary explanation given, followed by valuations. Other reasons included the possibility of stronger international markets attracting investment dollars, the stronger dollar and the length of the current bull market.

Here is a sampling of the responses:

  • “It is likely to happen as other alternatives (bonds, CDs, cash, etc.) offer far worse returns.”
  • “Somewhat likely provided that interest rates stay low and employment improves.”
  • “Somewhat unlikely since the Fed will probably begin raising rates in the next few months.”
  • “Unlikely. P/E ratios are getting frothy.”
  • “Very likely. The economy will continue to grow.”


AAII Sentiment Survey: Neutral Sentiment Surges; Optimism Plunges

Posted on March 12, 2015 | AAII Survey

Neutral sentiment surged to a level not seen since last May in the latest AAII Sentiment Survey. The rise in neutral sentiment occurred as bullish sentiment fell to its lowest level since last summer.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 8.2% percentage points to 31.6%. This is the lowest level of optimism since August 7, 2014 (30.9%). The drop puts bullish sentiment below its historical average of 39.0% for the first time in five weeks and just the fifth time in 31 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 6.2 percentage points to 43.0%. Neutral sentiment was last higher on May 22, 2014 (43.2%). The rise puts neutral sentiment above its historical average of 30.5% for the 10th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.1 percentage points to 25.4%. Though at a five-week high, pessimism remains below its historical average of 30.5% for the fifth consecutive week and the 43rd out of the past 52 weeks.

Bullish sentiment has declined by a cumulative 15.4 percentage points since reaching a near-term high of 47.0% on February 19, 2015. Over the same period, neutral sentiment has risen by a cumulative 7.9 percentage points and bearish sentiment has risen by a cumulative 7.5 percentage points. The rebound in pessimism is occurring after bearish sentiment had fallen to an unusually low level of 17.9% on February 19, 2015.

Neutral sentiment is now at an unusually high level, meaning it is more than one standard deviation above its historical average. Unusually high levels of neutral sentiment have historically been associated with better-than-average market performance over the preceding 26- and 52-week periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.)

The change in sentiment is occurring as the S&P 500 has pulled back from its recent highs. Though jitters about the Federal Reserve raising interest rates sooner than later have impacted stock prices, when asked two months ago, AAII members expressed mixed opinions about how the market would react to the first rate hike. More than 40% said they expect stock prices to fall in reaction to the announcement of the first rate hike, though about half of these respondents also predicted that the decline will be temporary.

Also playing weighing on AAII members’ short-term market outlooks are prevailing valuations, disappointing earnings or guidance from certain companies, geopolitical events, the pace of economic growth and worries that an even larger decline in stock prices could occur. Keeping some AAII members encouraged is the overall upward momentum of stock prices, sustained economic expansion, earnings growth and an accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 31.6%, down 8.2 percentage points
  • Neutral: 43.0%, up 6.2 percentage points
  • Bearish: 25.4%, up 2.1 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.



Fourth-Quarter Earnings Make Little Impact on Investor Outlook

Posted on March 5, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members how fourth-quarter earnings have influenced their six-month outlook for stocks. Responses were mixed, with 37% of respondents saying the profit reports have not influenced their outlooks. Many of these individual investors said other factors were more influential, such as geopolitics, valuations and monetary policy. Nearly a quarter (24%) of respondents said fourth-quarter earnings negatively impacted their outlook, with the impact of the stronger dollar being the primary reason. Just under 15% were encouraged by last quarter’s earnings, with many saying the results confirmed that growth was still occurring.

Here is a sampling of the responses:

  • “No influence. I’m much more concerned about global issues.”
  • “Earnings are being pressured by the rising dollar.”
  • “Not much. Some earnings have been dampened by currency fluctuations. I view this as temporary noise.”
  • “Reinforced the notion that large-cap companies are in good shape.”


Market Conditions, Direction, Valuation Influencing Allocations

Posted on March 3, 2015 | AAII Survey

Last month’s Asset Allocation Survey special question asked AAII members what predominately influences their decision to increase or decrease their exposure to stocks and stock funds. Responses were mixed, with some members giving more than one reason. Market conditions were cited by about 19% of all respondents. A nearly equal number pointed to market direction (9%) as did valuation (8%). The attractiveness of equities or individual stocks were given as a reason by about 19% of all respondents as well. Many of these members cited expected returns as playing a role. Slightly more than 13% of all respondents said their age influences their allocation. Roughly 11% said economic conditions play a role, while 10% said they maintain or rebalance to a targeted allocation.



February AAII Asset Allocation Survey: Equity Allocations at 2nd Highest Level Since 2007

Posted on March 3, 2015 | AAII Survey

Last month, equity allocations within individual investors’ portfolios rebounded back to their second-highest level since the financial crisis. The February AAII Asset Allocation Survey showed a rise in stock and stock fund holdings, a decline in fixed-income holdings and no change in cash allocations.

Stock and stock fund allocations rebounded by 1.1 percentage points to 68.3%. This ties December 2013 for the second-highest allocation to equities since June 2007. Last month was also the 23rd consecutive month and the 25th out of the past 26 months with stock and stock fund allocations at or above their historical average of 60%.

Bond and bond fund allocations declined by 1.1 percentage points to 16.4%, a three-month low. Even with the decrease, bond and bond fund allocations remained at or above their historical average of 16% for the ninth consecutive month.

Cash allocations were unchanged at 15.3%. February was the 39th consecutive month with cash allocations below their historical average of 24%.

The increase in stock and stock fund allocations is not surprising given the background factors at play. The S&P 500 gained 5.5% last month and experienced its best February performance since 1998. Optimism in our weekly Sentiment Survey was above its historical average for most of the month as well. Bond yields, though rising in February, were at low levels at the end of January.

February AAII Asset Allocation Survey results:

  • Stocks and Stock Funds: 68.3%, up 1.1 percentage points
  • Bonds and Bond Funds: 16.4%, down 1.1 percentage points
  • Cash: 15.3%, unchanged

February AAII Asset Allocation details:

  • Stocks: 33.9%, up 2.9 percentage points
  • Stock Funds: 34.4%, down 1.8 percentage points
  • Bonds: 3.3%, up 0.2 percentage points
  • Bond Funds: 13.1%, down 1.3 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.

 



Discomfort with Current Stock Valuations

Posted on February 26, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members about their comfort level with current stock valuations. Just under half of all respondents said stocks are either overvalued (33%) or somewhat/slightly overvalued (14%). Many who thought stocks were expensive described current valuations as being high relative to historical valuations. At the other end of the spectrum, 17% of respondents said they were either comfortable with current valuations or view them as being acceptable. Several of these respondents pointed to profit growth as the reason why. Slightly more than 10% said stocks are undervalued, while 5% said the answer depends on the industry or the stock being analyzed.

A common theme across answers was a lack of good alternatives for investment dollars. Several respondents thought stocks could continue to rise so long as interest rates stay low or profits continue to grow.

Here is a sampling of the responses:

  • “I think valuations are high, but they may stay that way for a considerable time.”
  • “Not very comfortable as the price-earnings ratio seems pretty high, but there is no other game in town besides equities.”
  • “Some stocks are getting too high; need to be selective and not buy the ‘market.’”
  •  “Stocks are undervalued due to the level of profits.”
  • “I’m fairly comfortable at current valuations as I think prices reflect trends in revenues and earnings.”
  • “The Shiller CAPE ratio is extremely high.”


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