The percentage of individual investors describing their outlook for stocks as “neutral” rose to its highest level in nearly two years. At the same time, optimism is at its lowest level in more than six months according to the latest AAII Sentiment Survey.
Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 10.9 percentage points to 26.4%. Optimism was last lower on August 31, 2017 (25.0%). The drop keeps optimism below its historical average of 38.5% for the third time in five weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 5.9 percentage points to 45.2%. Neutral sentiment was last higher on May 25, 2016 (52.9%). The historical average is 31.0%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 5.0 percentage points to 28.4%. Though a four-week high, pessimism remains below its historical average of 30.5% for the 12th time in 13 weeks.
Neutral sentiment has now risen for five consecutive weeks, increasing by a cumulative 18.7 percentage points. Conversely, optimism has fallen by a cumulative 22.1 percentage points since Valentine’s Day. At current levels, neutral sentiment is unusually high, while optimism is unusually low. Since our survey was started in 1987, the S&P 500 index has experienced average six-month returns following unusually high neutral sentiment readings and better-than-average returns following unusually low bullish sentiment readings.
Trade policy appears to have had some impact, though it’s uncertain how much. Tariffs and trade policy were specifically mentioned by some respondents to this week’s survey even though we did not ask about it. Many individual investors are also anticipating continued volatility and/or think the political backdrop could have a further impact on the stock market. Higher interest rates are having an influence on some, but not all individual investors. Also playing a role are valuations, tax cuts, earnings and economic growth.
This week’s AAII Sentiment Survey results:
- Bullish: 26.4%, down 10.9 percentage points
- Neutral: 45.2%, up 5.9 percentage points
- Bearish: 28.4%, up 5.0 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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