Opinions Mixed About Influences on Stock Price Direction

Posted on January 8, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they thought would most influence the direction of stock prices this year. There was not a consensus agreement. Slightly more than one out of every five respondents (22%) said the direction and level of oil prices would be a key driver of stock prices. A nearly equal number (20%) said interest rates and U.S. monetary policy will have a big impact. The economy (primarily job growth and the pace of expansion) was a close third, named by 19% of respondents. About 14% of respondents thought geopolitical events—including those in Russia, Ukraine, the Middle East and North Korea—could impact stock prices.

 



AAII Sentiment Survey: Pessimism Rises to a 3-Month High

Posted on January 8, 2015 | AAII Survey

Pessimism among individual investors about the short-term direction of stock prices is at a three-month high, according to the latest AAII Sentiment Survey. Even with the increase, bearish sentiment remains below its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged by 10.7 percentage points to 41.0%. This is a three-week low. The drop was not large enough to keep optimism from staying above its historical average of 39.0% for the 20th time in 22 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.3 percentage points to 31.3%. The increase puts neutral sentiment back above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked by 8.4 percentage points to 27.7%. The level of pessimism is the highest seen since October 16, 2014 (33.7%). Even with the big upward move, bearish sentiment remains below its historical average of 30.5% for the 12th consecutive week. Last year (2014), there were 43 weeks with a below-average reading for bearish sentiment.

The stock market’s weak start to the new year had a notable impact on individual investors’ short-term outlook. Geopolitical events, the impact of falling oil prices on energy stocks, a sense that prevailing valuations for other stocks are too high, the pace of economic growth and worries that an even larger decline in stock prices could occur are causing some AAII members to be cautious or pessimistic. Other AAII members remain encouraged by the overall upward momentum of stock prices, falling energy prices, earnings growth and sustained economic expansion.

This week’s AAII Sentiment Survey results:

  • Bullish: 41.0%, down 10.7 percentage points
  • Neutral: 31.3%, up 2.3 percentage points
  • Bearish: 27.7%, up 8.4 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.



Sell OF THE WEEK 1/7/2014

Posted on January 7, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Applied Materials (AMAT) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





BUY OF THE WEEK 1/6/2015

Posted on January 6, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Caterpillar (CAT) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week




Nearly Half of Investors’ Allocations Matched Expectations

Posted on January 5, 2015 | AAII Survey

Last month’s Asset Allocation Survey special question asked AAII members how their year-end portfolio allocations compared to what their expectations were at the beginning of 2014. Nearly half of all respondents (45%) said their year-end allocations matched or were close to their expectations. About 17% of respondents said their year-end equity allocations were larger than they had anticipated. Approximately 8% said that they were holding onto more cash than expected.

Here is a sampling of the responses:

  • “Right on target. I’m surprised I held onto my bond funds as long as I did.”
  • “More cash and less equities as I was nervous of the run up [in stock prices].”
  • “Similar. I try to keep 1/3rd in fixed-income and 2/3rd in equities.”
  • “Thought I would have more bonds at higher [interest] rates.”
  • “More cash than expected. Normally, I’m very close to fully invested.”
  • “Just rebalanced in October.”
  • “Right on target. I rebalance periodically.”


AAII Asset Allocation Survey: Equity Allocations at Highest Level Since 2007

Posted on January 5, 2015 | AAII Survey

Individual investors put the largest proportion of their portfolios into equities last month since 2007, according to the December AAII Asset Allocation Survey. Equity allocations exceeded 68%, while cash allocations fell to their lowest level since at least 2000.

Stock and stock fund allocations rose 1.3 percentage points to 68.5%. Equity allocations were last higher in June 2007 (68.6%). Last month’s increase puts stock and stock fund allocations at or above their historical average of 60% for the 21st consecutive month and the 23rd out of the past 24 months.

Bond and bond fund allocations rebounded by 0.8 percentage points to 16.8%. The increase keeps fixed-income allocations at or above their historical average of 16% for the seventh consecutive month.

Cash allocations fell by 2.0 percentage points to 14.8%. As noted above, the drop puts cash allocations at their lowest level since at least 2000. (The allocation numbers were rounded prior to May 2000.) Last month’s drop kept cash allocations below their historical average of 24% for the 37th consecutive month.

The unusually high allocation to stocks coincided with new record highs being set by large-cap stocks. At the same time, optimism about the short-term direction of stocks prices mostly stayed above average throughout the month of December. Many AAII members also continued to be frustrated by low bond yields and low interest rates on money market accounts.

December AAII Asset Allocation Survey results:

  • Stocks and Stock Funds: 68.5%, up 1.3 percentage points
  • Bonds and Bond Funds: 16.8%, up 0.8 percentage points
  • Cash: 14.8%, down 2.0 percentage points

December AAII Asset Allocation Survey details:

  • Stocks: 32.2%, up 0.5 percentage points
  • Stock Funds: 36.3%, up 0.8 percentage points
  • Bonds: 3.4, down 0.1 percentage points
  • Bond Funds: 13.3%, up 0.8 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.



Investors Modestly Optimistic About 2015 S&P 500 Gains

Posted on January 5, 2015 | AAII Survey

Last week’s Sentiment Survey special question asked AAII members what percentage gain or loss the S&P 500 will realize in 2015. Respondents were modestly optimistic. Nearly 60% expected a gain of no more than 10%. More than a third of all respondents (36.3%) said the large-cap stock index would end 2015 up between 5% and 10%, and slightly less than a quarter of respondents (22.3%) expected a rise of 5% or less. About 20% of respondents expected the S&P 500 to rise by double-digits again, though the majority of these individual investors projected gains between 10% and 15%. Just 16% of respondents expected a decline, with 7% of all respondents calling for a decline of 5% or less and 9% anticipating a loss in excess of 5%.



AAII Sentiment Survey: Optimism Stays at an Unusually High Level

Posted on January 5, 2015 | AAII Survey

Optimism among individual investors remains at an unusually high level for the second consecutive week, according to the latest AAII Sentiment Survey. Conversely, pessimism is below 20% for a second consecutive week—an occurrence that has been rare during the past nine years. Despite this bullish stance, many individual investors are anticipating the S&P 500’s gain this year to be limited to no more than 10%.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose by a modest 0.8 percentage points to 51.7%. The rise keeps optimism above its historical average of 39.0% for the 19th time in 21 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.2 percentage points to 29.0%. The decline keeps neutral sentiment below its historical average of 30.5% for the second consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 0.4 percentage points to 19.3%. Even with the modest rise, pessimism is below its historical average of 30.5% for the 11th consecutive week. Last year (2014), there were 43 weeks with a below-average reading for bearish sentiment.

Pessimism is below 20% on consecutive weeks for the just the third time since 2005. Bearish sentiment was below 20% on November 6 and 13, 2014, and on January 5 and 12, 2012. Bearish sentiment readings below 20.5% are unusually low (more than one standard deviation below average) and have been correlated with slightly lower than typical returns for the S&P 500 over the following six-month periods, as I explained in the June 2014 AAII Journal.

Bullish sentiment is above 50% for the second consecutive week and for the fifth time in nine weeks. Readings above 49.2% are unusually high. Unusually high levels of optimism have been historically correlated with below-average market gains over the following six and 12 months.

Individual investors are encouraged by the overall upward momentum of stock prices, falling energy prices, earnings growth and sustained economic expansion. Keeping other AAII members cautious are geopolitical events, the impact of falling oil prices on energy stocks, a sense that prevailing valuations for other stocks are too high, the pace of economic growth and worries that a large drop in stock prices is forthcoming.

This week’s AAII Sentiment Survey results:

  • Bullish: 51.7%, up 0.8 percentage points
  • Neutral: 29.0%, down 1.2 percentage points
  • Bearish: 19.3%, 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.



Sell OF THE WEEK 12/24/2014

Posted on December 31, 2014 | Podcast

AAII Journal Editor Charles Rotblut gives updates on previous “Sell of the Week” stocks Exxon Mobil (XOM), Stephan Company (SCL) and Lululemon (LULU) to Chuck Jaffe of MarketWatch on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





Take Advantage of Not Being a Professional Money Manager

Posted on December 30, 2014 | Dividend Investing

Money managers will be eyeing their year-end return numbers closely because managers are judged on performance. As an individual investor, you have the advantage of not having to report your performance. This is a huge advantage because it means never having to make short-term trading decisions in hopes of boosting your performance figures or making your portfolio look more attractive to clients. Rather, the only performance number that matters for you is whether you have enough money to fulfill your financial goals. You get the luxury of focusing on the long term, while money managers have to worry about keeping clients and their jobs every quarter. We can’t emphasize enough how big of an advantage this is for you.

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