AAII Sentiment Survey: More Than 50% of Individual Investors Are Bullish

Posted on August 28, 2014 | AAII Survey

Bullish sentiment topped 50% for the first time since December 26, 2013, in the latest AAII Sentiment Survey. Bearish sentiment, meanwhile, continued to drop, falling below 20% for the first time this year.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 5.8 percentage points to 51.9%. This is only the fourth time optimism has exceeded 50% since February 2011. It is also the first time bullish sentiment has exceeded its historical average of 39.0% for three consecutive weeks or more since March 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.4 percentage points to 28.8%. This is the lowest neutral sentiment has been since January 2, 2014.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 4.4 points to 19.2%. Pessimism was last lower on December 26, 2013 (18.5%). The drop keeps bearish sentiment below its historical average of 30.5% for the 39th time in the past 46 weeks.

At current levels, optimism is unusually high and pessimism is unusually low (more than one standard deviation away from their respective historical averages). Since our survey began in 1987, the
S&P 500 has typically experienced weaker than normal returns whenever bullish sentiment is unusually high or bearish sentiment is unusually low. The median six-month returns for the large-cap index have been 3.8% following unusually high optimism and 4.5% following unusually low pessimism. The median six-month return over the survey’s entire history is 5.2%.

Bullish sentiment has risen by a cumulative 21.0 percentage points over the past two weeks, while bearish sentiment has dropped by a cumulative 19.0 percentage points. The reversal comes as the S&P 500 rebounded off of its short-term lows and broke above 2,000. This rebound has also alleviated fears among some individual investors about a possible correction having started earlier this month. Other factors contributing to the optimistic stance are second-quarter earnings, sustained economic growth and the Federal Reserve’s tapering of bond purchases. Keeping some individual investors pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.

This week’s AAII Sentiment Survey results:

  • Bullish: 51.9%, up 5.8 percentage points
  • Neutral: 28.8%, down 1.4 percentage points
  • Bearish: 19.2%, down 4.4 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



The Bull Market’s Age Is Having a Varied Impact on Investor Attitudes

Posted on August 28, 2014 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members how, if at all, the current bull market is impacting their attitude towards U.S. stocks. Answers were varied. About 36% of respondents said the current length of the bull market is having no impact. Some of these respondents said they were more focused on valuation measures, some are more focused on Federal Reserve policy and others simply said they are focused on the long term. About 18% of respondents indicated they are more optimistic because of the bull market’s resiliency, while 12% said they are more pessimistic because of it.

Here is a sampling of the responses:

  • “Not much, because I invest for the long term.”
  • “I am more optimistic that the market has more upside before hitting a correction.”
  • “I’m cautiously optimistic, but will be paying close attention to the Federal Reserve and interest rates.”
  • “I’m definitely more cautious; waiting on pullbacks and analyzing stocks more thoroughly.”
  • “It’s harder to pick undervalued stocks.”
  • “I think we’re due for a correction, but the long-term outlook still seems positive.”
  • “It’s making retirement a lot easier.”


Individual Investor Optimism Reaches an 8-Month High

Posted on August 21, 2014 | AAII Survey

Optimism about the short-term direction of stock prices jumped to an eight-month high in the latest AAII Sentiment Survey. Neutral sentiment, meanwhile, dipped below its historical average for the first time since early January.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 6.3 percentage points to 46.1%. This is the largest amount of optimism recorded by our survey since December 26, 2013 (55.1%). It is also just the second time since March with a bullish sentiment reading above its historical average of 39.0% on back-to-back weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.0 percentage points to 30.2%. The drop ends a 32-week stretch of neutral sentiment readings above its historical average of 30.5%. It was the third-longest such streak in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 points to 23.7%. Pessimism is now at a seven-week low. Bearish sentiment is also below its historical average of 30.5% for the 38th time in the past 45 weeks.

Bullish sentiment has risen by a cumulative 15.2 percentage points over the past two weeks, while bearish sentiment has dropped by a cumulative 14.5 percentage points. The reversal comes as the S&P 500 has rebounded off of its short-term lows and ended the survey period near record highs. This rebound has alleviated fears among some individual investors about a possible correction having started. Other factors contributing to the optimistic stance are second-quarter earnings, sustained economic growth and the Federal Reserve’s tapering of bond purchases. Keeping some individual investors pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.

At current levels, both bullish and bearish sentiment remain within their typical historical ranges, as does the bull-bear spread. The bull-bear spread measures the difference between bullish and bearish sentiment.

This week’s AAII Sentiment Survey results:

  • Bullish: 46.1%, up 6.3 percentage points
  • Neutral: 30.2%, down 3.0 percentage points
  • Bearish: 23.7%, down 3.3 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.



Q2 Earnings Not Influencing Outlook for Many Individual Investors

Posted on August 21, 2014 | AAII Survey

This week’s special question asked AAII members if, and why, second-quarter earnings have impacted their six-month outlook towards stock prices. Slightly less than half of all respondents (49%) said the quarterly results haven’t impacted their outlook. Many of these members said either they are more focused on the economy or that quarterly earnings are too short-term of an indicator. Just under 23% of respondents said second-quarter earnings have positively influenced their outlook. Many of these respondents said earnings are improving. Earnings were viewed negatively or not good enough to justify current valuations by about 12% of respondents.

Here is a sampling of the responses:

  • “Earnings are not necessarily the real indicator of the underlying economy.”
  • “They are too short-term and thus unimportant in the long-term.”
  • “I believe the market is showing strength in varied sectors and the corporate profits are improving.”
  • “Earnings were good overall in the second quarter. The economy is slowly improving.”
  • “They’re still not high enough to justify the sky-high valuations.”


AAII Sentiment Survey: Big Changes in Optimism and Pessimism

Posted on August 14, 2014 | AAII Survey

Optimism surged and pessimism plunged in the latest AAII Sentiment Survey. The shift in attitudes about the short-term direction of stock prices as optimism experienced its biggest one-week gain in six months and pessimism experienced its largest two-week fluctuation in nearly a year.

Bullish sentiment, expectations that stock prices will rise over the next six months, surged 8.9 percentage points to 39.8%. This is the biggest one-week rise in optimism since February 13, 2014, when it jumped 12.3 percentage points to 40.2%. Bullish sentiment is now at its highest level since June 12, 2014 (44.7%). This week is also just the third in the past 22 weeks with optimism above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose by 2.3 percentage points to 33.2%. The rebound keeps neutral sentiment above its historical average of 30.5% for the 32nd consecutive week. This is the third-longest streak of consecutive weekly readings above 30.5% in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 11.3 points to 27.0%. The drop puts pessimism at a six-week low. It also puts bearish sentiment below its historical average of 30.5% for the 37th time in the past 44 weeks.

This week’s 11.2 percentage point drop in bearish sentiment follows last week’s 7.1 percentage point rise. A fluctuation of comparable size has not occurred since August 2013. Pessimism jumped 14.7 percentage points to 42.9% on August 22, 2013 and then pulled back by 12.1 percentage points to 30.7% on August 29, 2013.

The big change in sentiment this week occurred as both large-cap and small-cap stocks rebounded from their recent lows. Changes in the composition of AAII members taking the survey this week relative to last week may have also had an effect. (We send out reminders to take the survey to a rotating group of AAII members each week.) Other factors include second-quarter earnings, sustained economic growth and the Federal Reserve’s tapering of bond purchases. Keeping some individual investors pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.

It should be noted that despite this week’s big changes, both optimism and pessimism remain well within their respective typical ranges. Neither is unusually high or low at current levels.

This week’s AAII Sentiment Survey results:

  • Bullish: 39.8%, up 8.9 percentage points
  • Neutral: 33.2%, up 2.3 percentage points
  • Bearish: 27.0%, down 11.3 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.



AAII Members on Corporate Inversions: Change the Tax Code

Posted on August 14, 2014 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members for their opinion about whether U.S. corporations should pursue tax inversions. Approximately 49% of respondents said companies should pursue inversions, while 36% said companies should not. Nearly one in four those who are in favor of inversions thought such transactions could pressure Congress to reform the tax code. A nearly equal proportion of those not favoring inversions said the tax law needs to be changed. Several members, both for and against inversions, described the U.S. corporate tax rate as being both high and a reason why inversions are being pursued.

Here is a sampling of the responses:

  • “U.S. corporations should do what’s best for shareholders. The U.S. needs to fix/simplify its tax code.”
  • “If a corporation primarily receives its income in the U.S., it should pay its taxes in the U.S.”
  • “Corporations should pursue inversions until the U.S. modifies and reduces its uncompetitive tax rate.”
  • “I believe this tax loophole should be removed. It perverts our economic system.”
  • “While patriotic concerns are debatable, any corporation may adhere to the law of the land.”
  • “Yes, corporations have a fiduciary duty to do so. It’s not their problem that Congress is so dysfunctional.”


Pessimism Among Individual Investors Surges

Posted on August 7, 2014 | AAII Survey

Pessimism among individual investors jumped to its highest level in nearly a year in the latest AAII Sentiment Survey. The spike in expectations for a short-term drop comes as neutral sentiment fell to levels not seen since January.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined by 0.2 percentage points to 30.9%. During the past three weeks, optimism has fluctuated within a 1.5 percentage-point range. This week’s reading keeps bullish sentiment below its historical average of 39.0% for the eighth consecutive week and the 19th time in the past 21 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 6.9 percentage points to 30.9%. Neutral sentiment was last lower on January 2, 2014 (27.6%). Even with the drop, neutral sentiment remains above its historical average of 30.5% for the 31st consecutive week. This is the third-longest streak of consecutive weekly readings above 30.5% in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked by 7.1 percentage points to 38.2%. This is the largest amount of pessimism recorded in our survey since August 22, 2013. It is also the first time since April of this year with a bearish sentiment reading above the historical average of 30.5% for two consecutive weeks.

Bearish sentiment is near, but not at, the upper end of its typical historical range. The spike in pessimism follows the S&P 500′s worst week in nearly two years and suggests some investors believe the market’s upward momentum is being interrupted. Also playing a role in the backdrop are concerns about prevailing valuations, heightened geopolitical tensions, slow economic growth and frustration with Washington politics.

Notably, bullish sentiment is still within its typical historical range. Keeping some AAII members hopeful about the short-term direction of the market is economic growth, the market’s overall upward trend, and the Federal Reserve’s tapering of bond purchases.

This week’s AAII Sentiment Survey results:

  • Bullish: 30.9%, down 0.2 percentage points
  • Neutral: 30.9%, down 6.9 percentage points
  • Bearish: 38.2%, up 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.



Individual Investors Say U.S. Economic Growth Is Slow

Posted on August 7, 2014 | AAII Survey

This week’s special question asked AAII members for their opinion about the current pace of economic growth. Approximately 20% of respondents described the rate of growth as being slow. An additional 12% said growth is occurring at too slow of a pace. Just under 13% described the rate of expansion as being dismal, anemic or weak. About 10% described the economy as steadily expanding, though many clarified their responses by describing the pace as slow. Nearly 8% thought the economy is getting stronger.

Here is a sampling of the responses:

  • “Economic growth is slower than we need, and it is uneven.”
  • “I think it is better, but there is still not enough job growth.”
  • “It may not be as strong as some people want, but it is steady, with no end in sight.”
  • “It is improving after a long struggle. I think it will continue to improve.”
  • “Slow, sluggish and subpar for a recovery.”
  • “Very tepid and not likely to improve.”


Equity Allocations Among AAII Members Reach a 2014 High

Posted on August 4, 2014 | AAII Survey

Allocations to stocks and stock funds reached their highest level of the year in July, according to the latest AAII Asset Allocation Survey. Bond and bond fund allocations rebounded to levels not seen since last January, while cash allocation fell to a 14-year low.

Stock and stock fund allocations rose 0.5 percentage points to 67.5%. This is the largest allocation to equities since December 2013 (68.3%). It is also the 16th consecutive month and the 18th out of the past 19 months with equity allocations above their historical average of 60%.

Bond and bond fund allocations rose 0.7 percentage points to 16.7%, the largest allocation since January 2014. The historical average is 16%.

Cash allocations declined 1.3 percentage points to 15.8%. The drop puts cash allocations at their lowest level since March 2000 (15%). July was the 32nd month with cash allocations below their historical average of 24%.

Since hitting what was then an eight-month high in May 2014 (19.2%), cash allocations have declined by a cumulative 3.4 percentage points. Over the same period, equity allocations have risen by a cumulative 2.2 percentage points and fixed-income allocations have risen by a cumulative 1.2 percentage points. Thus, while we have not seen a big shift, there has been a rotation out of cash. Notably, yields on the five-year and 10-year Treasury bonds have risen slightly over this period. Plus, optimism about the short-term direction of stock prices has stayed below average in our weekly Sentiment Survey. Nonetheless, with yields staying near historically low levels, cash looks unattractive except to those investors who require cash reserves or expect prevailing market conditions to worsen.

July Asset Allocation Survey results:

  • Stocks and Stock Funds: 67.5%, up 0.5 percentage points
  • Bonds and Bond Funds: 16.7%, up 0.7 percentage points
  • Cash: 15.8%, down 1.3 percentage points

July Asset Allocation Survey details:

  • Stock Funds: 34.2%, up 1.8 percentage points
  • Stocks: 33.3%, down 1.3 percentage points
  • Bond Funds: 13.5%, up 0.7 percentage points
  • Bonds: 3.2%, unchanged

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.

 



Use of Index Funds Varies Among AAII Members

Posted on August 4, 2014 | AAII Survey

The July AAII Asset Allocation Survey special question asked AAII members how much of their portfolio is allocated to index funds (mutual funds and ETFs) and how of it is actively managed (individual securities and actively managed funds). More than 21% of respondents said between 90% and 100% of their portfolios are actively managed. An additional 10% said at between 70% and 90% of their portfolio is actively managed. At the other end of the spectrum, nearly 8% of respondents have more than 90% of their portfolio allocated to index funds and another 7% have between 70% and 90% of their portfolio passively managed. Approximately 12% of respondents said that roughly half of their portfolio is allocated to index funds.



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