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.”


AAII Sentiment Survey: Optimism Moderates, Remains Above Average

Posted on February 26, 2015 | AAII Survey

The percentage of individual investors describing their short-term outlooks for stock prices as either bullish or neutral moderated in the latest AAII Sentiment Survey. Pessimism rebounded, but remained at a low level.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.6 percentage points to 45.4%. Even with the pullback, this is the 25th out of the last 29 weeks that optimism is above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.8 percentage points to 34.3%. This week is the eighth consecutive week with neutral sentiment above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, reversed last week’s drop by rebounding 2.4 percentage points to 20.3%. Pessimism is right on the edge of what we consider to be an unusually low level. The historical average for bearish sentiment is 30.5%.

Although the major indexes rose for several consecutive days, bullish and neutral sentiment pulled back after recently setting near-term highs. As noted above, both measures continue to remain above their respective historical averages.

Keeping AAII members encouraged are the upward momentum of stock prices, comparatively low energy prices, earnings growth and sustained economic expansion. Causing other members to be cautious or pessimistic are prevailing valuations, disappointing earnings or guidance from certain companies, geopolitical events, the impact of lower oil prices on energy stocks, the pace of economic growth and worries that an even larger decline in stock prices could occur.

This week’s AAII Sentiment Survey results:

  • Bullish: 45.4%, down 1.6 percentage points
  • Neutral: 34.3%, down 0.8 percentage points
  • Bearish: 20.3%, up 2.4 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.



Greek Economy Having Little Impact on Investor Attitudes

Posted on February 19, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members about how Greece’s attempts to renegotiate its debt are influencing their short-term outlook for U.S. stocks. More than two-thirds of respondents (69%) said the Greek situation is not influencing their outlook. About one out of every five respondents overall (21%) said the Greek economy is too small in terms of its global economic influence to have a lasting impact on the U.S. markets. An additional 12% of all respondents think an agreement between the European Union and the new Greek leaders will be reached.

Nearly 18% of respondents said the situation with Greece is negatively influencing their outlooks. Many of these members said they are avoiding European stocks because of the uncertainty or view the situation as being bad for the European Union.

Here is a sampling of the responses:

  • “Greece is a small economy and won’t drag down the European Union. Any impact on the U.S. market will be short-lived.”
  • “I’m sure the European Union will find a way to compromise with Greece.”
  • “The instability of Europe, including the Greek renegotiations, is one significant factor influencing my outlook.”
  • “The unresolved issue makes me leery of both eastern and western European stocks.”
  • “Not at all. Greece is a neverending saga of financial mismanagement.”


AAII Sentiment Survey: Optimism Surges to Second-Highest Level of 2015

Posted on February 19, 2015 | AAII Survey

Individual investor optimism about the short-term direction of stock prices is at its highest level since the start of the year, according to the latest AAII Sentiment Survey. Pessimism, meanwhile, is at a three-month low.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 7.0 percentage points to 47.0%. This is the largest amount of optimism since January 1, 2015 (51.7%). The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 4.6 percentage points to 35.1%. The decline comes a week after what had been the highest reading since July 24, 2014 (40.4%). Nonetheless, neutral sentiment remains above its historical average of 30.5% for the seventh consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 2.4 percentage points to 17.9%. Pessimism was last lower on November 6, 2014 (15.1%). The historical average for bearish sentiment is 30.5%.

As the S&P 500 has rebounded off of its late January lows, we’ve seen a shift in individual investors’ short-term outlooks. Bullish sentiment is up by a cumulative 11.5 percentage points over the past two weeks, while bearish sentiment is down by cumulative 14.5 percentage points. Pessimism is now at an unusually low level (more than one standard deviation below its historical average).

Keeping AAII members encouraged, in addition to the upward momentum of stock prices, are comparatively low energy prices, earnings growth and sustained economic expansion. Causing other members to be cautious or pessimistic are disappointing earnings or guidance from certain companies, geopolitical events, the impact of lower oil prices on energy stocks, a sense that prevailing valuations for stocks are too high, the pace of economic growth and worries that an even larger decline in stock prices could occur.

This week’s AAII Sentiment Survey results:

  • Bullish: 47.0%, up 7.0 percentage points
  • Neutral: 35.1%, down 4.6 percentage points
  • Bearish: 17.9%, down 2.4 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.



Health Care Stocks Favored Among Investors

Posted on February 12, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what sectors or industries they like right now. More than 40% of all respondents said health care (including pharmaceutical and biotech stocks). Technology and energy were a distant second and third, picked by 23% and 22% of all respondents, respectively. Financial stocks were fourth, named by 15% of all respondents.



AAII Sentiment Survey: Neutral Sentiment Surges

Posted on February 12, 2015 | AAII Survey

The percentage of individual investors describing their short-term outlook for stocks as “neutral” surged to its highest level since last summer. The sharp rise occurred as pessimism plunged.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 4.5 percentage points to 40.0%. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, surged by 7.6 percentage points to 40.0%. This is the largest amount of neutral sentiment since July 24, 2014 (40.4%). The jump puts neutral sentiment above its historical average of 30.5% for the sixth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, continued its recent volatility by falling 12.1 percentage points to 20.3%. The plunge puts pessimism at a six-week low. The historical average is 30.5%.

Neutral sentiment is at an unusually high level. The typical range of readings over the life of the survey is 22.1% to 39.3%. High levels of neutral sentiment have historically been followed by better-than-average gains in the S&P 500, as I explained in the June 2014 AAII Journal. This said, bullish sentiment was at an unusually high level last month and such readings have historically been followed by smaller-than-average gains in the S&P 500.

A combination of recent price volatility and fourth-quarter earnings reports have contributed to the recent swings in both bullish and bearish sentiment registered by our survey over the past few weeks. Keeping AAII members encouraged is the overall upward momentum of stock prices, comparatively low energy prices, earnings growth and sustained economic expansion. Causing other members to be cautious or pessimistic are disappointing earnings or guidance from certain companies, geopolitical events, the impact of lower oil prices on energy stocks, a sense that prevailing valuations for stocks are too high, the pace of economic growth and worries that an even larger decline in stock prices could occur.

This week’s AAII Sentiment Survey results:

  • Bullish: 40.0%, up 4.5 percentage points
  • Neutral: 39.7%, up 7.6 percentage points
  • Bearish: 20.3%, down 12.1 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.



Stronger Dollar Negatively Influencing Some Investor Attitudes

Posted on February 5, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members how the stronger dollar is influencing their sentiment towards companies with international operations. More than a third of all respondents (36%) said it is having a negative impact. Several of these individual investors said the stronger dollar is creating a headwind for corporate earnings or is causing them to be more selective about which stocks they buy. About 29% said the stronger dollar isn’t having an effect. Some of these respondents said they do not invest in foreign companies or view the currency fluctuations as part of a normal, cyclical trend. Slightly more than 10% of respondents said the stronger dollar is having more of a company-specific than a broad market impact on their sentiment.

Here is a sampling of the responses:

  • “It does not affect my thinking. This is just a cyclical change. Soon enough fortunes will be reversed.”
  • “Makes me less likely to buy or add to [shares of companies with international operations].”
  • “Guarded. Some are okay and some I would avoid.”
  • “I try not to invest in international companies.”
  • “[Companies with international operations are going to take hit to profits. Their share price will go down as a result.”
  • “No change. I have a longer-term view.”


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