Optimism declined slightly, while pessimism bounced back from a 17-month low last week.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 1.2 percentage points to 40.1%. Optimism was higher last week (41.3%). Despite the slight decline, this is the now the second week in a row, but only the third time in the past 31 weeks, that optimism has been above its historical average of 38.5%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 4.1 percentage points to 32.7%. Neutral sentiment was last lower on August 2, 2017 (31.8%). This is the 21st consecutive week that neutral sentiment has been above its historical average of 31.0%.
Bearish sentiment, expectations that stock prices will fall over the next six months, gained 5.2 percentage points compared to last week’s reading, reaching 27.2%. Despite the increase, pessimism was much higher two weeks ago (35.7% on September 6, 2017) and remains below its long-term historical average of 30.5%.
At current levels, bullish sentiment remains close to its historical levels. Pessimism, though low, is also within its typical range.
While pessimism rose this week, it may have been a simple mean reversion; last week pessimism declined to its lowest level since April 6, 2016. The reading marked the largest one-week drop since July 2010. From the beginning of 2009 up to this week, there have only been 26 declines in bearish sentiment of 10 percentage points or more.
As stated last week, although the August pullback has been reversed, concerns about a larger pullback still exist among some investors, and monetary policy may play a big role in future expectations. The Federal Reserve concluded its two-day meeting on Wednesday, and (as expected) announced no change in the policy interest rate. While the bank did mention that one more rate hike by year end is likely, officials projected one fewer rate hike than initially forecast by 2019. The Federal Reserve also announced its intention to begin unwinding its $4.5 trillion balance sheet in October, and it trimmed its inflation outlook for this year from 1.7% to 1.5%, and for 2018 from 2.0% to 1.9%. The lack of inflation may have been why the Federal Reserve lowered its long-run target for the fed funds rate from 3.0% to 2.8%.
Prior to the Federal Reserve meeting, the probability of one or more additional rate increases before year-end was roughly 50-50, according to fed funds futures data tracked by CME Group. This probability jumped to nearly 70% following release of the Fed meeting minutes, while Treasury yields climbed and the U.S. dollar strengthened against peer currencies.
Now that the Federal Reserve meeting has passed, investors will likely shift their focus back to Washington. Additionally, a new earnings season is right around the corner.
This week’s AAII Sentiment Survey results:
- Bullish: 40.1%, down 1.2 percentage points
- Neutral: 32.7%, down 4.1 percentage points
- Bearish: 27.2%, up 5.2 percentage points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
Want to weigh in? Take the survey yourself and see results online at www.aaii.com/sentimentsurvey.
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