Global Events Having Mixed Effects on Investor Outlook

Posted on November 13, 2014 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what, if any, global events are influencing their six-month outlook for stocks. Responses varied, with several members listing more than one event. Russia’s intervention with Ukraine was cited by 17% of respondents. About 14% of respondents said events in the Middle East, particularly those involving the Islamic State group, were influencing their outlook. An equal number say both global and U.S. monetary policy, including stimulus programs in Japan and in Europe, are impacting their outlook. The midterm elections and the forthcoming change in Senate leadership was listed by 12% of respondents. About 11% mentioned the U.S. economy, either in terms of its recovery or its relative strength compared to the rest of the world. A similar percentage said they were encouraged by the drop in oil prices, though some said they would be concerned if prices fell too low. Just 6% of respondents discussed Ebola, with some seeing progress in containing it and others expressing concern about the outbreak spreading.



AAII Sentiment Survey: Optimism Keeps Rising, Hits 4-Year High

Posted on November 13, 2014 | AAII Survey

Optimism about the short-term direction of the stock market spiked to a four-year high in the latest AAII Sentiment Survey. Pessimism rebounded off of last week’s nine-year low, while neutral sentiment plunged.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.2 percentage points to 57.9%. This is the largest amount of optimism registered by our survey since December 23, 2010 (63.3%). It is also the sixth consecutive week and the 13th out of the past 14 weeks with bullish sentiment above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 9.5 percentage points to 22.8%. Neutral sentiment was last lower on March 14, 2013 (22.6%). The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 4.3 percentage points to 19.3%. This is the fourth consecutive week and the 37th week this year with pessimism below its historical average of 30.5%.

Optimism has only been higher on 57 occasions during the nearly 28-year history of our survey. The six-month return for the S&P 500 following those readings was an average of 0.0% and a median of 0.5%. This is not surprising given that unusually high levels of bullish sentiment and unusually low levels of bearish sentiment (pessimism more than one standard deviation below its historical average for the second consecutive week) have tended to be followed by below-average six- and 12-month gains, as I explained in the June 2014 AAII Journal.

Individual investors continue to react positively to the market’s rebound from its mid-October lows. Also contributing to the level of optimism are earnings growth, the Federal Reserve’s ending of its bond purchasing program, falling energy prices and sustained economic expansion. Some AAII members may also be reacting to the outcome of the midterm elections. Keeping other AAII members cautious are geopolitical events, a sense that prevailing valuations are too high, the pace of economic growth and worries that a larger drop in stock prices is forthcoming. It is unclear what, if any, impact the midterm elections had on investor sentiment.

This week’s AAII Sentiment Survey results:

  • Bullish: 57.9%, up 5.2 percentage points
  • Neutral: 22.8%, down 9.5 percentage points
  • Bearish: 19.3%, up 4.3 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.



Individual Investors Pleased About End of Quantitative Easing

Posted on November 6, 2014 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they thought about the Federal Reserve’s decision to conclude its bond purchase program. Nearly two-thirds of respondents (64%) said it is a good idea or that was about time to end the program. About 13% of respondents said the Fed should have ended quantitative easing sooner. Approximately 8% thought the conclusion of the bond purchases will have little or no impact. A few members said the Fed could always restart the stimulus if economic conditions worsen.

Here is a sampling of the responses:

  • “I think it’s an excellent idea. Maybe now there will be some investments for retired people other than just stocks.”
  • “It should have been ended a long time ago.”
  • “Well-telegraphed and done at the correct time.”
  • “I think it was the right thing to do. They can restart if needed, but the economy needs to stand on its own.”
  • “I’m glad they followed through as planned.”
  • “Amen!!”


AAII Sentiment Survey: Pessimism Plunges to a Nine-Year Low

Posted on November 6, 2014 | AAII Survey

Pessimism among individual investors fell while optimism rose to its highest level for 2014 in the latest AAII Sentiment Survey. At the same time, nearly one-third of survey respondents describe their short-term market outlook as “neutral.”

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.3 percentage points to 52.7%. This is the largest amount of optimism registered by our survey since December 26, 2013. It is also the fifth consecutive week and the 12th out of the past 13 weeks with bullish sentiment above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.7 percentage points to 32.3%. The rise puts neutral sentiment back above its historical average of 30.5% for the first time in five weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 6.0 percentage points to 15.1%. This is the smallest amount of pessimism registered by our survey since July 14, 2005 (14.0%). Bearish sentiment has been lower on only 56 out of the 1,400+ weeks tracked by our survey. The historical average is 30.5%.

The spread between bullish and bearish sentiment (the “bull-bear spread”) is now at 37.6 points. The last time we saw a bull-bear spread this wide was January 6, 2011.

Bearish sentiment has plunged by a cumulative 18.6 percentage points since hitting a near-term high of 33.7% in mid-October. Over the same period, bullish sentiment has risen by a cumulative 17.3 percentage points. At current levels, optimism is unusually high and pessimism is unusually low. Historically, such occurrences have been followed by lower-than-average levels of market gains, as I explained in the June 2014 AAII Journal.

Individual investors continue to react positively to the market’s rebound from its mid-October lows. Also contributing to the level of optimism are earnings growth, the Federal Reserve’s ending of its bond purchasing program and sustained economic expansion. Keeping some AAII members cautious are worries that a larger drop in stock prices is forthcoming, a sense that prevailing valuations are still too high, geopolitical events and the pace of economic growth. It is unclear what, if any, impact Tuesday’s elections had on investor sentiment.

This week’s AAII Sentiment Survey results:

  • Bullish: 52.7%, up 3.3 percentage points
  • Neutral: 32.3%, up 2.7 percentage points
  • Bearish: 15.1%, down 6.0 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.



Small-Cap Underperformance Spurs Members to Stay Steady

Posted on November 3, 2014 | AAII Survey

The special question in October’s Asset Allocation Survey asked AAII members what, if any, changes they made to their small-cap stock allocations given the relative underperformance of small-cap equities this year. Nearly half of all respondents (47%) said they have not made any changes. Some of these AAII members said they don’t own small-cap stocks, while others said they have been maintaining their current allocations. Slightly more than a quarter of all respondents (26%) said they sold all or part of their small-cap holdings. About 21% of respondents said they have either increased their small-cap stock allocations or plan to do so.

Here is a sampling of the responses:

  • “None. I generally do not do small-cap.”
  • “None. I’m keeping my asset allocation the same.”
  • “No changes. I will be likely to buy even more if they continue to drop and the prices become attractive.”
  • “I purchased more positions during the mini-correction of October.”
  • “Earlier in the year, I lightened up on small caps.”


October AAII Asset Allocation Survey: Equity Allocations Decline to 14-Month Low

Posted on November 3, 2014 | AAII Survey

Equity allocations among individual investors fell to a 14-month low, according to the October AAII Asset Allocation Survey. Bond allocations rose to levels not seen since last November, while cash allocations rose for the third consecutive month.

Stock and stock fund allocations fell by 2.6 percentage points to 64.1%. This is the smallest equity allocation since August 2014. Even with the decline, stock and stock fund allocations remained above their historical average of 60% for the 19th consecutive month and the 21st out of the past 22 months.

Bond and bond fund allocations increased 0.4 percentage points to 17.2%. This is an 11-month low. It is also the fourth consecutive month with fixed-income allocations above their historical average of 16%.

Cash allocations rose 2.1 percentage points to 18.7%, a five-month high. Even with the increase, October was the 35th consecutive month with cash allocations below their historical average of 24%.

Even though optimism about the short-term direction for stock prices increased in our weekly Sentiment Survey, many AAII members reduced their allocations to individual stocks last month. Differences in the composition of who took the respective surveys and the date at which they took the surveys may explain some of the differences between the results. Nonetheless, the overall decline in equity allocations suggests that some individual investors sought to reduce risk in reaction to the downward volatility that occurred last month.

October AAII Asset Allocation Survey results:

  • Stocks Total: 64.1%, down 2.6 percentage points
  • Bonds Total: 17.2%, up 0.5 percentage points
  • Cash: 18.7%, up 2.1 percentage points

October AAII Asset Allocation Survey details:

  • Stocks: 30.2%, down 3.7 percentage points
  • Stock Funds: 33.9%, up 1.2 percentage points
  • Bonds: 3.9%, down 0.2 percentage points
  • Bond Funds: 13.3%, up 0.7 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: Optimism Stays Near 50%

Posted on October 30, 2014 | AAII Survey

Optimism remained near 50% as many individual investors are encouraged about the short-term outlook for stock prices, according to the latest AAII Sentiment Survey. Neutral sentiment rose this week, while pessimism declined further.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.3 percentage points to 49.4%. Optimism is above its historical average of 39.0% for the fourth consecutive week and the 11th out of the past 12 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 29.6%. Even with the increase, neutral sentiment remains below its historical average of 30.5% for the fifth time in the past six weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined by 1.4 percentage points to 21.1%. This week’s decline puts pessimism at a nine-week low and brings the two-week drop to a cumulative 12.6 percentage points. The historical average is 30.5%.

Bullish sentiment is above 49% on consecutive weeks for the first time since February 3 and February 10, 2011. Even with this week’s decline, optimism remains at unusually high levels (more than one standard deviation above average). Past readings of unusually high optimism have typically been followed by lower-than-average levels of market gains, as I explained in the June 2014 AAII Journal.

Bearish sentiment is near the bottom of its typical range. A drop below 20.5% would put bearish sentiment at an unusually low level (more than one standard deviation below average). In the past, unusually low readings have been followed by modestly lower-than-average six- and 12-month gains in the S&P 500.

As I discussed last week, many individual investors viewed this month’s bout of downward volatility as a buying opportunity. The pullback in the S&P 500 index and the correction in the Russell 2000 index made valuations more attractive and helped to alleviate concerns about stock prices having moved too far upward too fast. Also contributing to the level of optimism are earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Keeping some AAII members cautious are worries that a larger drop in stock prices is forthcoming, a sense that prevailing valuations are still too high, geopolitical events, the pace of economic growth and Washington politics.

AAII Sentiment Survey results:

  • Bullish: 49.4%, down 0.3 percentage points
  • Neutral: 29.6%, up 1.7 percentage points
  • Bearish: 21.1%, down 1.4 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.



Volatility Making AAII Members More Likely to Buy

Posted on October 23, 2014 | AAII Survey

This week’s special question asked AAII members how the recent volatility has influenced their willingness to buy stocks. About 44% of respondents said they are either looking to buy, are more willing to buy or have bought. Another 19% said they are anticipating a bigger drop, looking for confirmation of a bottom or are sitting on the sidelines. Roughly 9% said the volatility hasn’t altered their willingness to buy stocks, with many of these respondents saying that they follow long-term strategies. Less than 4% of respondents said they have sold stocks in response to the volatility.

Here is a sampling of the responses:

  • “I have bought some stocks and may buy more.”
  • “I purchased a stock on my ‘shopping list’ because blood appeared on the street.”
  • “Accelerated my efforts to find quality stocks to purchase now that they are ‘on sale.’”
  • “I am waiting for better prices on the stocks I have been monitoring.”
  • “Waiting for the official correction to buy more stocks.”
  • “I wish I had more cash to buy stocks.”


AAII Sentiment Survey: Bullish Sentiment Surges to 49.7%

Posted on October 23, 2014 | AAII Survey

The proportion of individual investors expressing optimism about the short-term direction of the stock market surged to 49.7% in the latest AAII Sentiment Survey. At the same time, pessimism plunged.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped by 7.0 percentage points to 49.7%. This is the highest level of optimism registered by our survey since August 28, 2014 (51.9%). It is also the 10th week out of the past 11 with optimism above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 4.2 percentage points to 27.8%. Even with the increase, neutral sentiment is below its historical average of 30.5% for the fourth week in the past five.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell by 11.2 percentage points to 22.5%. The large drop puts pessimism at its lowest level since August 28, 2014.

As the results to this week’s special question show, many individual investors viewed the recent downward volatility as a buying opportunity. The pullback in the S&P 500 and the correction in the Russell 2000 made valuations more attractive and helped to alleviate concerns about stock prices having moved too far upward too fast. Also contributing to the level of optimism are earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Keeping other AAII members cautious are worries that a larger drop in stock prices is forthcoming, a sense that prevailing valuations are still too high, geopolitical events, the pace of economic growth and Washington politics.

Bullish sentiment has risen by a cumulative 14.3 points over the past three weeks. At current levels, optimism is at an unusually high level (more than one standard deviation above average). Past readings of unusually high optimism have typically been followed by lower-than-average levels of market gains, as I explained in the June 2014 AAII Journal.

This week’s AAII Sentiment Survey results:

  • Bullish: 49.7%, up 7.0 percentage points
  • Neutral: 27.8%, up 4.2 percentage points
  • Bearish: 22.5%, down 11.2 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.



AAII Members Favoring Health Care Stocks

Posted on October 16, 2014 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what industries or sectors they like right now. Nearly one-third (31%) of respondents said they liked health care stocks. Energy ranked second, picked by more than quarter of respondents (26%). Technology ranked third (16%), followed by financial companies in fourth place (14%). When we last asked this question in early June 2014, respondents said they liked energy, followed by technology and health care, and then industrials.



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