The Stretch of Low Optimism Continues

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Last month, optimism and pessimism in our weekly Sentiment Survey reached unusual levels. Bullish sentiment plunged to 20.9% on December 12, 2018, while bearish sentiment jumped to a multi-year high of 50.3% by the end of December. Of the two, unusually low readings for optimism have a stronger record of being a contrarian indicator.

The table displayed below on the web version of this commentary shows the historical performance of the S&P 500 index following the unusual readings for our sentiment measures: bullish, neutral and bearish. As I was updating it, I revisited the annual rankings of average bullish sentiment. Specifically, I looked to see how 2018’s average level of optimism compares to past years.

Last year, bullish sentiment averaged 36.4%. This ranks 2018 as having the 10th lowest level of optimism over the survey’s 31.5-year history. (The survey started in July 1987.) What’s more interesting is the recent trend: 2015, 2016, 2017 and 2018 all rank in the bottom 10 when it comes to average levels of bullish sentiment. Put another way, if we were to split the annual averages into thirds, the last four years would all be placed in the bottom tier in terms of how optimistic AAII members were about the short-term direction of the stock market.

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Highlights from this month’s AAII Journal


AAII Sentiment Survey

Pessimism remained above 40% for the fourth consecutive week, the longest such stretch since the fall of 2011. More about this week’s results.

This week’s results:
  • Bullish: 33.0%, up 1.5 points
  • Neutral: 24.2%, up 6.1 points
  • Bearish: 42.8%, down 7.5 points
Historical averages:
  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.


AAII Asset Allocation Survey

Cash allocations rose to their highest level in nearly six years. Additionally, nearly one out of four respondents to last month’s special question said they increased their exposure to cash. More about the latest results.

December AAII Asset Allocation Survey results:
  • Stocks and stock funds: 62.4%, down 2.2 percentage points
  • Bonds and bond funds: 15.8%, unchanged
  • Cash: 21.8%, up 2.1 percentage points
December AAII Asset Allocation Details:
  • Stocks: 27.9%, down 3.3 percentage points
  • Stock funds: 34.6%, up 1.1 percentage points
  • Bonds: 4.2%, up 0.8 percentage points
  • Bond funds: 11.6, down 0.8 percentage points

Take the Asset Allocation Survey.


What’s Trending on AAII

We’ll start to enter fourth-quarter earnings season with S&P 500 members Constellation Brands Inc. (STZ) and Lennar Corp. (LEN) reporting on Wednesday, Delta Air Lines Inc. (DAL) reporting on Thursday and BlackRock Inc. (BLK) reporting on Friday.

The week’s first economic reports will be the November factory orders and the Institute for Supply Management’s (ISM) December non-manufacturing index, both of which will be released on Monday. Tuesday will feature November international trade and the November JOLTS report. The minutes from last month’s Federal Open Market Committee (FOMC) meeting will be released on Wednesday. The December consumer price index (CPI) is currently scheduled to be released on Friday, though given the ongoing government shutdown, it may be delayed—as might other economic reports.

Four Federal Reserve officials will make public appearances: Atlanta president Raphael Bostic on Monday and Wednesday; Boston president Eric Rosengren on Wednesday; and both St. Louis president James Bullard and Richmond president Tom Barkin on Thursday.
The Treasury Department will auction $38 billion of three-year notes on Tuesday, $24 billion of 10-year notes on Wednesday and $16 billion of 30-year bonds on Thursday.

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