AAII Sentiment Survey: Optimism Declines, but Stays Above Average

Posted on September 11, 2014 | AAII Survey

Optimism among individual investors about the short-term direction of the market declined for a second week in the latest AAII Sentiment Survey. Even with the pullback, bullish sentiment is above average for the fifth consecutive week, the longest such streak since February 13 through March 13, 2014.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.3 percentage points to 40.4%. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 33.0%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 2.6 points to 26.6%. Even with the increase, pessimism is below its historical average of 30.5% for the 42nd time in the past 48 weeks.

Bullish sentiment has declined by a cumulative 11.5 percentage points since nearly reaching 52% two weeks ago. The pullback represents a reversion to the mean following the unusually high level of optimism (bullish sentiment has only exceeded 50% four times since February 2011). This week’s reading is also likely somewhat influenced by the S&P 500′s recent inability to stay above 2,000.  It is worth noting that in the backdrop of the recent decline in bullish sentiment, pessimism remains below average.

Keeping many individual investors optimistic about the short-term direction of stock prices is the S&P 500’s overall upward momentum, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Causing other AAII members to be 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:

  • Bullish: 40.4%, down 4.3 percentage points
  • Neutral: 33.0%, up 1.7 percentage points
  • Bearish: 26.6%, up 2.6 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.



Federal Reserve’s Tapering Has Little Impact on Investor Attitudes

Posted on September 11, 2014 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members how the Federal Reserve’s ongoing tapering of bond purchases is impacting their six-month outlook for stock prices. Slightly more than half of all respondents (51%) said the tapering is not having any impact. Several of them (accounting for about 10% of all respondents) believe the market has already priced in the gradual ending of bond purchases by the central bank. About 17% thought the ending of quantitative easing is a negative or could lead to either additional volatility or a correction. An additional 8% said the ending of bond purchases and potential rise in interest rates is causing them to become more cautious or view stocks less favorably. At the other end of the spectrum, six percent of respondents view the tapering as a positive for the stock market.

Here is a sampling of the responses:

  • “Old news, it should not affect the stock market.”
  • “Not at all. I am looking forward to the end of tapering and the gradual increase in interest rates to get us back to a normal state.”
  • “The ongoing tapering has already been figured in by the market and will have no impact on my forecast whatsoever.”
  • “Once the reality of higher rates sets in, it will increase volatility and either flatten or lower stock prices.”
  • “I find it generally encouraging. The economy must be getting better for the Fed to taper.”


Many AAII Members Comfortable With Prevailing Stock Valuations

Posted on September 4, 2014 | AAII Survey

This week’s special question asked AAII members how comfortable they are with the valuations of the stocks they currently hold. Half of all respondents said they are comfortable with current valuations. Some of these respondents described valuations as being elevated, but not too high. Others described valuations as being acceptable. An additional 5% of respondents said they were very comfortable with current valuations. At the other end of the spectrum, more than 18% of respondents described themselves as not being comfortable. Many of these respondents said valuations are too high.

Here is sampling of the responses:

  • “Valuations are at the high end of normal, but overall, I feel comfortable with where valuations are.”
  • “I’m comfortable only because I’m buying quality companies.”
  • “I think valuations are too high.”
  • “I’m not comfortable, but there are not good alternatives.”
  • “I am very comfortable as I believe the stocks I’m investing in are fairly valued, if not undervalued.”


AAII Sentiment Survey: Optimism Pulls Back from Recent High

Posted on September 4, 2014 | AAII Survey

Optimism among individual investors about the short-term direction of the stock market pulled back, but remained above average, in the latest AAII Sentiment Survey. Bullish sentiment is now at a three-week low, while both neutral sentiment and bearish sentiment are at three-week highs.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.2 percentage points to 44.7%. Even with the drop, optimism remains above its historical average of 39.0% for the fourth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.5 percentage points to 31.4%. The increase puts neutral sentiment back above its historical average of 30.5% for the first time in three weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 4.7 points to 24.0%. The increase was not large enough to keep pessimism from staying below its historical average of 30.5% for the 41st time in the past 47 weeks.

A reversion to the mean occurred this week, with bullish sentiment pulling back from an unusually high level and bearish sentiment rebounding from an unusually low level. Even with the shift, it is important to realize that optimism is still nearly six percentage points above its historical average and pessimism is more than six percentage points below its historical average.

Keeping many individual investors optimistic about the short-term direction of stock prices are the S&P 500′s rise above 2,000, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Causing other AAII members to be 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: 44.7%, down 7.2 percentage points
  • Neutral: 31.4%, up 2.5 percentage points
  • Bearish: 24.0%, up 4.7 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.



August AAII Asset Allocation Survey: Rising Optimism Not Altering Portfolios

Posted on September 2, 2014 | AAII Survey

Portfolio allocations among individual investors were largely unchanged last month even as optimism about the short-term direction of stock prices swelled. The August AAII Asset Allocation Survey revealed only minor changes in equity, fixed-income and cash allocations relative to July.

Stock and stock fund allocations declined 0.2 percentage points to 67.3%. This is the 17th consecutive month and the 19th out of the past 20 months with equity allocations above their historical average of 60%.

Bond and bond fund allocations declined 0.1 percentage points to 16.6%. The historical average is 16%.

Cash allocations rose 0.2 percentage points to 16.0%. Even with the slight increase, cash allocations are at their third-lowest level since March 2000 (15%). August was the 33rd consecutive month with cash allocations below their historical average of 24%.

The 21-percentage-point rise in optimism towards stocks registered by our Sentiment Survey last month did not translate into higher equity allocations. This said, equity allocations were at their highest levels of the year in July, and August’s allocations were very close to that level. Fixed-income allocations also remain close to their 2014 highs as low yields have boosted bond prices. Cash allocations remain low as prevailing yields make the asset class look unattractive except to those investors who require cash reserves or expect market conditions to worsen.

August Asset Allocation Survey results:

  • Stocks and Stock Funds: 67.3%, down 0.2 percentage points
  • Bonds and Bond Funds: 16.6%, down 0.1 percentage points
  • Cash: 16.0%, up 0.2 percentage points

August Asset Allocation Survey details:

  • Stocks: 31.24%, down 2.1 percentage points
  • Stock Funds: 36.1%, up 1.9 percentage points
  • Bonds: 3.0%, down 0.2 percentage points
  • Bond Funds: 13.6%, up 0.1 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.



Falling Interest Rates Not Impacting AAII Members’ Portfolios

Posted on September 2, 2014 | AAII Survey

August’s AAII Asset Allocation Survey special question asked AAII members, how, if at all, this year’s drop in interest rates has impacted their portfolio allocations. More than half of respondents (56%) said the drop has not had any impact on their portfolios. Some of these respondents said they were out of bonds or that they have not noticed a change in their allocations. An additional 8% said the pullback in interest rates has either had “little” or “not much” impact. About 9% of respondents said they have bought stocks and/or real estate investment trusts (REITs) in response to the falling interest rates. Fewer than 5% of respondents said that they’ve boosted their cash allocations.

Here is a sampling of the responses:

  • “Not at all. I was already fully invested in stocks.”
  • “I’m not interested in bonds with interest rates so low.”
  • “I stick to my target allocations, so interest rate variations are largely ignored unless swift and severe.”
  • “Normally I would reduce bond exposure and increase stock exposure, but the projected future stock yields have decreased as well.”
  • “No effect. I continue to buy value and dividend stocks.”


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.”


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