Earnings Less Influential Than Market Moves

Posted on August 27, 2015 | AAII Survey

This week’s Sentiment Survey special question, which was posted at the very beginning of the survey period, asked AAII members how second-quarter earnings have influenced their outlook for stock prices. Nearly 40% of respondents said that the quarterly results did not influence their outlook, with several citing their long-term investment strategy as the reason why. An additional 7% said that other factors are more influential, such as the concerns about global economic weakness. About 9% of respondents described themselves as being more cautious or pessimistic because of second-quarter earnings. Only 5% of respondents said that corporate earnings made them more optimistic. A few members directly mentioned the recent correction instead of answering this week’s special question, though the comments were varied.

Here is a sampling of the responses:

  • “One quarter’s earnings never influence my outlook for the long term.”
  • “The bigger concern is the global slowdown.”
  • “Earnings were okay, but the outlooks given by companies were not very comforting.”
  • “Earnings were good and I am still optimistic on the economy.”
  • “Not at all. The current sell-off is the primary influence on my outlook.”


AAII Sentiment Survey: Both Optimism and Pessimism Surge

Posted on August 27, 2015 | AAII Survey

Both optimism and pessimism jumped in the latest AAII Sentiment Survey. Neutral sentiment, meanwhile, plunged to a nearly nine-month low.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.7 percentage points to 32.5%. Optimism was last higher on June 25, 2015 (35.6%). (Bullish sentiment was also at 32.5% on July 23, 2015.) Even with this week’s increase, bullish sentiment remains below its historical average of 39.0% for the 25th consecutive week, the longest such streak since a 29-week stretch in 1993.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 10.6 percentage points to 29.2%. The large drop puts neutral sentiment at its lowest level since January 1, 2015 (29.0%). It also ends a record streak of 33 consecutive weeks with readings above the historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, surged 4.9 percentage points to 38.3%. Pessimism was last higher on July 29, 2015 (40.7%). This week’s rise keeps bearish sentiment above its historical average of 30.0% for a fifth consecutive week.

The recent streak of above-average bearish sentiment is part of a broader shift we’ve seen this summer. Pessimism has been above its historical average during eight out of the past 12 weeks. During the entire 52-week period prior to June 2015, bearish sentiment was above its historical average of 30.0% just nine times. Furthermore, bearish sentiment has now exceeded bullish sentiment for five consecutive weeks. This is the longest such occurrence since a seven-week stretch between October 11 and November 22, 2012.

This week’s concurrent increases in optimism and pessimism are indicative of the mixed view that individual investors likely have of the surge in volatility that occurred over the survey period, which runs from 12:01 a.m. on Thursday to 11:59 p.m. on Wednesday. Some members had previously stated that they were looking for a drop in prices to bring valuations down and create a buying opportunity. Others may be concerned that the market is at risk of further downside.

This week’s AAII Sentiment Survey results:

  • Bullish: 32.5%, up 5.7 percentage points
  • Neutral: 29.2%, down 10.6 percentage points
  • Bearish: 38.3%, up 4.9 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 Wish for Federal Reserve Clarity, Change in Gov. Policies

Posted on August 20, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what one thing about the current market environment they would change if they had a magic wand. We received a wide variety of answers, but were able to group the responses into broad categories. The largest group of respondents (21%) singled out the Federal Reserve, with many calling for either an increase in interest rates or clarity on the timing of the first rate hike. Equal numbers, about 13% per group, want a change in government policies or a change in market conditions. Those wanting a change in policies discussed the tax code, regulations (both for and against) and reducing the federal debt. Lower volatility was the most desired change in market conditions, though some members want prices to fall in order to reduce prevailing valuations. An additional 8% would like to see less short-term trading and thinking. China was cited by 9% of respondents with individual investors wanting stronger economic growth or a more freely traded yuan.

Here is a sampling of the responses:

  • “Get the first rate hike over with already. It’s not as big of a deal as people make it out to be.”
  • “Stop the large up and down action.”
  • “I would like to see a realistic plan to balance the federal budget.”
  • “Not allow China to manipulate their currency.”
  • “Stabilization in crude oil prices, to that the oil industry might recover.”
  • “I wish median P/E ratios were lower.”


AAII Sentiment Survey: Neutral Sentiment Rises, Sets A New Record

Posted on August 20, 2015 | AAII Survey

Neutral sentiment’s rise in this week’s AAII Sentiment Survey kept it above its historical average for a record 33rd consecutive week. The previous record of 32 consecutive weeks was set last year. This week’s rise in neutral sentiment occurred as both optimism and pessimism declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, pulled back by 3.6 percentage points to 26.8%. The drop keeps optimism below its historical average of 39.0% for the 24th consecutive week, the longest such streak since a 29-week stretch in 1993.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 6.4 percentage points to 39.8%. The rise keeps neutral sentiment above its historical average of 31.0% for a record 33rd consecutive week, as noted above. The previous record streak of 32 consecutive weeks was set between January and August of last year.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 2.8 percentage points to 33.3%. Even with the decline, pessimism is above its historical average of 30.0% for a fourth consecutive week. The last time bearish sentiment was last above its historical average on four consecutive weeks was between April 11 and May 2, 2013.

Bullish sentiment is back at an unusually low level. Such readings have historically been correlated with above-median returns for the S&P 500. (There is no guarantee that history will repeat, however.) Neutral sentiment is right at the top end of its typical historical range.

The record streak of above-average readings for neutral sentiment has occurred as the S&P 500 has been essentially flat for several months. According to Driehaus Capital Management, the S&P 500 fluctuated within a 4.44% range during the six-month period ended August 13, 2015. Driehaus describes this as the narrowest trading range on record.

Giving AAII members reasons for caution are concerns about the possibility of a sizable 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. The lack of market breadth and ongoing daily volatility on are also playing a role. Keeping other 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: 26.8%, down 3.6 percentage points
  • Neutral: 39.8%, up 6.4 percentage points
  • Bearish: 33.3%, down 2.8 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.



One-Half of Members Favor CEO Compensation Transparency

Posted on August 13, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they think about the new requirement for companies to disclose how CEO compensation compares to the median compensation for all employees. Half of all respondents were in favor of the rule. Many favor the increased level of transparency, saying shareholders have a right to the information. Several others brought up the issue of excessive CEO compensation. About 4% of all respondents used the word “great” to describe the new requirement.

Not everyone was in favor of the new rule. Slightly more than a quarter of all respondents (26%) disfavor the new rule or think it’s a bad idea. Common themes in their responses were that the rule amounts to government interference, it’s unnecessary or it is politically motivated. An additional 13% of respondents said the rule won’t lead to any significant changes in compensation.

Here is a sampling of the responses:

  • “I think this is great. CEO compensation for a lot of companies has gotten out of hand.”
  • “Excellent idea! This can be another metric for CEO accountability to shareholders.”
  • “The more transparency the better. I like the rule.”
  • “Do not like, it is a politically correct activity and not something to protect investors.”
  • “I see no value in it. Regulators are again overstepping their authority.”
  • “I’m not sure what effect it will have. We already know that many CEOs are overpaid.”


AAII Sentiment Survey: Neutral Sentiment Matches a Record Despite Plunging

Posted on August 13, 2015 | AAII Survey

Neutral sentiment plunged to a four-month low, as both optimism and pessimism both rose in the latest AAII Sentiment Survey. Nonetheless, neutral sentiment still matched a record set last year.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 6.1% percentage points to 30.5%. The rise is not large enough to prevent optimism from being below its historical average of 39.0% for a 23rd consecutive week, the longest such streak since a 29-week stretch in 1993.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 10.6 percentage points to 33.4%. This is the lowest neutral sentiment has been since April 2, 2015 (32.6%). Even with the large drop, neutral sentiment is above its historical average of 31.0% for a 32nd consecutive week. This ties the record for the longest streak of consecutive weeks with an above-average reading, which was set between January and August of last year.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 4.5 percentage points to 36.1%. The rise keeps pessimism above its historical average of 30.0% for a third consecutive week.

This is only the second time in approximately two years that bearish sentiment has been above 30% for a period of three consecutive weeks. The last time this occurred was October 16, 2014. We point this out to show how pessimism has largely been staying at low levels. During the past two years, the level of pessimism registered by our survey has averaged 26.5%. It is too early to say whether the recent occurrences of above-average bearish sentiment (six out of the past 10 weeks) is a sign of the pendulum swinging back the other way or if it’s just just a temporary blip in a longer-term trend.

Giving AAII members reasons for caution are concerns about the possibility of a sizable 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. The lack of market breadth and ongoing volatility are also playing a role. Keeping other 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

  • Bullish: 30.5%, up 6.1 percentage points
  • Neutral: 33.4%, down 10.6 percentage points
  • Bearish: 36.1%, up 4.5 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.



Lack of Market Breadth Concerns AAII Members

Posted on August 6, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members about how concerned they are about a small number of stocks driving this year’s gains in the S&P 500 and the NASDAQ. Nearly 44% of respondents said they either concerned or very concerned about the lack of market breadth. Several viewed it as a negative signal about the market’s future direction. Slightly more than 15% said they were somewhat concerned about the lack of market breadth. Nearly a third of all respondents (32%) said they are not concerned or are only slightly concerned. Several of these members said they are either more focused on the performance of their portfolios or that they follow a long-term approach.

Here is a sampling of the responses:

  • “I believe it’s very concerning. It’s not a very good sign.”
  • “This concerns me very much. It looks like a top to the current market high.”
  • “It is a concern because it skews the results. Hard to tell what is happening elsewhere.”
  • “None at all. I focus on individual stocks and each company’s performance.”
  • “Not much breadth to the market, but being a long-term investor, I am not as concerned with short-term gyrations.”


AAII Sentiment Survey: Neutral Sentiment Rebounds as Pessimism Drops

Posted on August 6, 2015 | AAII Survey

The proportion of individual investors describing their short-term market expectations as neutral rebounded back above 40% in the latest AAII Sentiment Survey. The change occurred as pessimism pulled back after nearly hitting a two-year high last week.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.2% percentage points to 24.3%. The increase follows what had been a seven-week low. It is not large enough, however, to prevent optimism from being below its historical average of 39.0% for a 22nd consecutive week, the longest such streak since a 29-week stretch in 1993.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 5.8 percentage points to 44.0%. The increase keeps neutral sentiment above its historical average of 31.0% for a 31st consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 9.0 percentage points to 31.7%. The drop follows last week’s large upward spike. Even with the decrease, pessimism is above its historical average of 30.0% for a second consecutive week and the fifth time in the past nine weeks.

Bullish sentiment is at an unusually low level (below 28.5%) for the fourth time in six weeks. Neutral sentiment, conversely, is back at an unusually high level (above 39.6%) for the 17th time in 18 weeks. Both unusually low optimism and unusually high neutral sentiment have been correlated with above-median returns for the S&P 500. (There is no guarantee that history will repeat.)

Though there have been notable swings in bullish and bearish sentiment over the past two months, pessimism has generally been higher relative to the levels registered over the preceding 12 months. A bigger constant has been neutral sentiment, which is now just shy of matching the record for the most consecutive weeks of above-average readings (32 weeks).

Giving AAII members reasons for caution 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. As this week’s special question indicates, the lack of market breadth is a factor for some individual investors as well. Keeping other 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: 24.3%, up 3.2 percentage points
  • Neutral: 44.0%, up 5.8 percentage points
  • Bearish: 31.7%, down 9.0 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.



July Asset Allocation: Members Mixed on Portfolio Changes

Posted on August 3, 2015 | AAII Survey, Asset Allocation

Last month’s Asset Allocation Survey special question asked AAII members what, if any, allocations they expect to make during the second half of the year. Responses were mixed. The largest group, representing 28% of all respondents, did not anticipate making any changes. Many of them said they are following a long-term strategy. Nearly 20% of respondents expect to shift money into stocks or stock funds, particularly if there is a notable market drop. About 12% of respondents expect to boost their cash holdings, while 11% think they will reduce the amount held in cash. Approximately 10% say they will increase their fixed-income holdings. Several members said they may reallocate within a given asset category, with several mentioning the possibility of increasing exposure to international stocks.



July AAII Asset Allocation Survey: Portfolios Mostly Unchanged Despite Higher Volatility

Posted on August 3, 2015 | AAII Survey, Asset Allocation

Higher levels of stock market volatility did not cause many individual investors to alter their portfolio allocations, according to the July AAII Asset Allocation Survey. Rather, allocations among stocks, bonds and cash changed only modestly.

Stock and stock fund allocations rebounded by 0.2 percentage points to 67.4%, following modest declines during the previous two months. The small increase resulted in stock and stock fund allocations staying above their historical average of 60% for the 28th consecutive month.

Bond and bond fund allocations were essentially unchanged for the third consecutive month, holding steady at 15.5%. As was the case in June, the changes in bond fund and bond allocations were very minor (and largely unnoticeable after the results were rounded). July was the third consecutive month with fixed-income allocations below their historical average of 16.0%.

Cash allocations edged down 0.1%, to 17.2%. This was the first time that cash allocations stayed above 17.0% on consecutive months since March 2014 through June 2014. Last month was the 44th consecutive month with a cash allocation reading below its historical average of 24%.

The increased volatility in the stock market and the corresponding weekly swings in our Sentiment Survey did not result in many changes being made to the portfolios of AAII members. Though some members are concerned about the possibility of a sizeable decline in stock prices occurring, many remain frustrated with the continuing low level of interest rates.

Here is a sampling of the responses:

  • “Any changes made to allocations will depend on what the market does.”
  • “I expect to make no significant allocation changes during the balance of 2015.”
  • “Use cash to purchase stocks upon any significant market correction.”
  • “Slowly increase bond holdings, including funds.”

July AAII Asset Allocation Survey Results:

  • Stocks and Stock Funds: 67.4%, up 0.2 percentage points
  • Bond and Bond Funds: 15.5%, no change
  • Cash: 17.2%, down 0.1 percentage points

July AAII Asset Allocation details:

  • Stocks: 33.0%, down 0.6 percentage points
  • Stock Funds: 34.4%, up 0.9 percentage points
  • Bonds: 3.7%, down 0.1 percentage points
  • Bond Funds: 11.8%, no change

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.



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