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Neutral Sentiment Stays Above 45% for a Third Week

Neutral sentiment is above 45% for a third consecutive week, the longest such streak since 1989. Optimism declined slightly, while pessimism rose slightly.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.6 percentage points to 31.5%. The modest drop keeps optimism below its historical average of 39.0% for a seventh consecutive week. The last time optimism stayed below average for a longer period of time was an eight-week stretch between June 19, 2014 and August 7, 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, edged up 0.2 percentage points to 45.3%. This week’s rise keeps neutral sentiment above its historical average of 30.5% for the 16th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.4 percentage points to 23.2%. The historical average is 30.5%.

There are two observations to make regarding neutral sentiment. First, this is the longest streak with neutral sentiment at or above 45% since a four-week stretch between December 16, 1988 and January 6, 1989. (Neutral sentiment fluctuated between 46% and 54% over that span.) Second, since the start of 2014, neutral sentiment has been above its historical average of 30.5% on 56 out of 69 weeks.

Historically, unusually high levels of neutral sentiment have been correlated with better-than-average market performance over the following six- and 12-month periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.) There is no guarantee history will repeat in the future, however.

Keeping some AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy. Causing other 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 in earnings growth and worries that a notable decline in stock prices could occur.

This week’s AAII Sentiment Survey results:

  • Bullish: 31.5%, down 0.6 percentage points
  • Neutral: 45.3%, up 0.2 percentage points
  • Bearish: 23.2%, up 0.4 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.

 

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