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Neutral Sentiment Rises to Highest Level Since September

Expectations among individual investors for a flat market rose to its highest level since September in the latest AAII Sentiment Survey. Pessimism also rose, reaching a nine-week high, while optimism fell below its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell by 6.3 percentage points to 38.7%. Optimism was last lower on October 2, 2014 (35.4%). The drop ends a streak of 10 consecutive weeks with bullish sentiment above its historical average of 39.0%. This had been the longest such streak in nearly three years.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 34.4%. Neutral sentiment was last higher on September 18, 2014 (34.8%). This is the third 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, jumped by 4.5 percentage points to 26.9%. This is the highest level of pessimism since October 16, 2014 (33.7%). The increase was not large enough to keep bearish sentiment below its historical average of 30.5% for the ninth consecutive week and the 42nd week this year, however.

Neutral sentiment has risen by a cumulative 7.3 percentage points over the past three weeks. At the same time, bullish sentiment has declined by a cumulative 13.5 percentage points. The shift in expectations occurred as the S&P 500 underwent what was essentially a pullback. The large-cap index fell 4.9% between December 5 and December 16, 2014.

Keeping individual investors optimistic is falling energy prices, the overall upward momentum in stock prices, earnings growth, the Federal Reserve’s ending of its bond purchasing program and sustained economic expansion. Keeping other AAII members cautious are geopolitical events, weakness in energy stocks, a sense that prevailing valuations for other stocks are too high, the pace of economic growth and worries that a larger drop in stock prices is forthcoming.

This week’s AAII Sentiment Survey results:

  • Bullish: 38.7%, down 6.3 percentage points
  • Neutral: 34.4%, up 1.7 percentage points
  • Bearish: 26.9%, up 4.5 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.

 

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