AAII Sentiment Survey: Pessimism Plunges to a Nine-Year Low
Posted on November 6, 2014 | AAII Survey
Pessimism among individual investors fell while optimism rose to its highest level for 2014 in the latest AAII Sentiment Survey. At the same time, nearly one-third of survey respondents describe their short-term market outlook as “neutral.”
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.3 percentage points to 52.7%. This is the largest amount of optimism registered by our survey since December 26, 2013. It is also the fifth consecutive week and the 12th out of the past 13 weeks with bullish sentiment above its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.7 percentage points to 32.3%. The rise puts neutral sentiment back above its historical average of 30.5% for the first time in five weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 6.0 percentage points to 15.1%. This is the smallest amount of pessimism registered by our survey since July 14, 2005 (14.0%). Bearish sentiment has been lower on only 56 out of the 1,400+ weeks tracked by our survey. The historical average is 30.5%.
The spread between bullish and bearish sentiment (the “bull-bear spread”) is now at 37.6 points. The last time we saw a bull-bear spread this wide was January 6, 2011.
Bearish sentiment has plunged by a cumulative 18.6 percentage points since hitting a near-term high of 33.7% in mid-October. Over the same period, bullish sentiment has risen by a cumulative 17.3 percentage points. At current levels, optimism is unusually high and pessimism is unusually low. Historically, such occurrences have been followed by lower-than-average levels of market gains, as I explained in the June 2014 AAII Journal.
Individual investors continue to react positively to the market’s rebound from its mid-October lows. Also contributing to the level of optimism are earnings growth, the Federal Reserve’s ending of its bond purchasing program and sustained economic expansion. Keeping some AAII members cautious are worries that a larger drop in stock prices is forthcoming, a sense that prevailing valuations are still too high, geopolitical events and the pace of economic growth. It is unclear what, if any, impact Tuesday’s elections had on investor sentiment.
This week’s AAII Sentiment Survey results:
- Bullish: 52.7%, up 3.3 percentage points
- Neutral: 32.3%, up 2.7 percentage points
- Bearish: 15.1%, down 6.0 percentage points
- 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 11/5/2014
Posted on November 5, 2014 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Skyworks Solutions, Inc. (SWKS) 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 11/4/2014
Posted on November 4, 2014 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Edwards Lifesciences Corp (EW) 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
AAII WEEKLY FEATURES 11/4/2014
Posted on November 4, 2014 | Weekly Features
This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.
Small-Cap Underperformance Spurs Members to Stay Steady
Posted on November 3, 2014 | AAII Survey
The special question in October’s Asset Allocation Survey asked AAII members what, if any, changes they made to their small-cap stock allocations given the relative underperformance of small-cap equities this year. Nearly half of all respondents (47%) said they have not made any changes. Some of these AAII members said they don’t own small-cap stocks, while others said they have been maintaining their current allocations. Slightly more than a quarter of all respondents (26%) said they sold all or part of their small-cap holdings. About 21% of respondents said they have either increased their small-cap stock allocations or plan to do so.
Here is a sampling of the responses:
- “None. I generally do not do small-cap.”
- “None. I’m keeping my asset allocation the same.”
- “No changes. I will be likely to buy even more if they continue to drop and the prices become attractive.”
- “I purchased more positions during the mini-correction of October.”
- “Earlier in the year, I lightened up on small caps.”
October AAII Asset Allocation Survey: Equity Allocations Decline to 14-Month Low
Posted on November 3, 2014 | AAII Survey
Equity allocations among individual investors fell to a 14-month low, according to the October AAII Asset Allocation Survey. Bond allocations rose to levels not seen since last November, while cash allocations rose for the third consecutive month.
Stock and stock fund allocations fell by 2.6 percentage points to 64.1%. This is the smallest equity allocation since August 2014. Even with the decline, stock and stock fund allocations remained above their historical average of 60% for the 19th consecutive month and the 21st out of the past 22 months.
Bond and bond fund allocations increased 0.4 percentage points to 17.2%. This is an 11-month low. It is also the fourth consecutive month with fixed-income allocations above their historical average of 16%.
Cash allocations rose 2.1 percentage points to 18.7%, a five-month high. Even with the increase, October was the 35th consecutive month with cash allocations below their historical average of 24%.
Even though optimism about the short-term direction for stock prices increased in our weekly Sentiment Survey, many AAII members reduced their allocations to individual stocks last month. Differences in the composition of who took the respective surveys and the date at which they took the surveys may explain some of the differences between the results. Nonetheless, the overall decline in equity allocations suggests that some individual investors sought to reduce risk in reaction to the downward volatility that occurred last month.
October AAII Asset Allocation Survey results:
- Stocks Total: 64.1%, down 2.6 percentage points
- Bonds Total: 17.2%, up 0.5 percentage points
- Cash: 18.7%, up 2.1 percentage points
October AAII Asset Allocation Survey details:
- Stocks: 30.2%, down 3.7 percentage points
- Stock Funds: 33.9%, up 1.2 percentage points
- Bonds: 3.9%, down 0.2 percentage points
- Bond Funds: 13.3%, up 0.7 percentage points
- 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.
Keeping the Bears at Bay
Posted on October 31, 2014 | Stock Superstars Report
The November SSR Monthly Report is now available at the SSR website. There is one new portfolio deletion and one new portfolio addition to announce.
Waving Goodbye to Quantitative Easing in the U.S.
Posted on October 31, 2014 | Dividend Investing
The Federal Open Market Committee voted to end its asset purchase program, or QE3 (quantitative easing 3) as the financial industry folks like to call it. It’s not the full end to monetary stimulus, however. The Federal Reserve will continue to reinvest principal payments, meaning the early repayment of bonds it currently holds. Interest rates will be kept at rock-bottom low levels too.
I Rebalanced My Portfolio
Posted on October 30, 2014 | Investor Update
I rebalanced my portfolio, or more specifically my 403(b) retirement savings account, this week. The change was made after I conducted my semiannual review. The changes offer some insight into how various asset classes have performed and how I personally manage my portfolio allocations.
Our 403(b) plan, which is the equivalent of a 401(k) plan, is operated through Vanguard. In it, I hold five funds: Vanguard 500 Index Fund (VFINX), Vanguard Small-Cap Value Index Fund (VISVX), Vanguard REIT Index Fund (VGSIX), Vanguard FTSE All-World ex-U.S. Small-Cap Index Fund (VFSVX) and the Vanguard Intermediate-Term Investment-Grade Fund (VFICX). The 500 index fund gives me access to what is arguably the most frequently used benchmark. The domestic small-cap value fund takes advantage of two factors shown to lead to higher returns: value and small company size. The FTSE small-cap fund gives me diversification via international small-cap stocks. Real estate investment trusts (REITs) have had similar long-term returns as small-cap stocks, tend to offer diversification benefits over longer periods of time and are one of the few asset classes to have a higher correlation to inflation. The bond fund provides diversification, buffers the portfolio against volatility and serves as a counter-weight I can rebalance into during bull markets for stocks and out of during bear markets for stocks. (I gave a longer explanation of my allocation, as well as the corresponding Admiral Share mutual fund and exchange-traded fund (ETF) tickers, last year. Vanguard will not allow us to hold the less expensive Admiral Share class funds in our accounts regardless of how much we have saved.)
Chocolate Dominates AAII Members’ Halloween Candy
Posted on October 30, 2014 | AAII Survey
This week’s special question asked AAII members what type of candy they will be giving out to trick-or-treaters tomorrow night, Halloween. Just under 40% of respondents said they will give out an assortment of chocolate, candy bars or other candies. Snickers will be the treats offered by about 14% of respondents. Nearly 7% will pass out lollipops or Tootsie Roll Pops. A little more than 20% said they won’t be handing out candy, primarily because they are not expecting any children to stop by tomorrow night.