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Neutral Sentiment Continues to Hit Record-Setting Levels

In this week’s AAII Sentiment Survey, neutral sentiment continued to remain above 45%, in a streak that has now reached its eighth consecutive week. Optimism increased, but remains well below its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.8 percentage points to 27.0%. The drop keeps optimism below its historical average of 39% for the 12th week in a row.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 1.9 percentage points to 47.9%. Although neutral sentiment declined, it remains above 45% for the eighth consecutive week and above its historical average of 31.0% for the 21st consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.1 percentage points, to 25.1%. This is the 18th week this year where pessimism has been below its historical average of 30%.

Bullish sentiment remains at an unusually low level, while neutral sentiment continues to stay at an unusually high level. Historically, such readings—both unusually high low bullish sentiment and unusually high neutral sentiment—have been correlated with better-than-average market performance over the following six- and 12-month periods. I wrote about this in Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal and updated the data in AAII’s May 21 Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns.

Causing some AAII members to be cautious or pessimistic are prevailing valuations, recent price volatility, geopolitical events, the pace of economic growth, the impact of the stronger dollar on earnings growth and worries that a notable decline in stock prices could occur. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 27.0%, up 1.8 percentage points
  • Neutral: 47.9%, down 1.9 percentage points
  • Bearish: 25.1%, up 0.1 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since June 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.

 

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