Sentiment Supports the Borrowing of 2017 Gains Argument



Support for the concept of the post-election (“Trump”) rally borrowing gains from 2017 can be found in our Sentiment Survey. Optimism was both unusually low (a bullish sign) and unusually high (a bearish sign) in recent weeks. Though seemingly contradictory, the two signals may not be when the post-election rally is taken into account.

I’ll start with the very large jump in optimism that occurred last month. Bullish sentiment surged by 26.3 percentage points between November 2 and November 23. This was the 13th biggest three-week increase in the survey’s 29-year history. It was also the largest three-week increase since 2010. (Bullish sentiment rose by 30.2 percentage points from August 26 to September 16, 2010. For those of you who are curious, the largest three-week increases were 40-point moves in August 1987 and July 2000.)

The most obvious question is: What does the move say about market direction? The average six-month gain for the S&P 500 following the 12 bigger upward moves in bullish sentiment was 0.3%. The large-cap index rose six times and fell six times during those periods. In comparison, the S&P 500 has realized an average six-month gain of 4.3% throughout our survey’s history.
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Highlights from the AAII Journal

AAII Sentiment Survey

Optimism pulled back this week following its 13th-largest three-week rise in our survey’s history. At current levels, bullish sentiment is back within its typical range. More about this week’s results.

This week’s results:
Bullish: 43.8%, down 6.1 points
Neutral: 31.1%, up 3.1 points
Bearish: 25.1%, up 3.0 points

Historical averages:
Bullish: 38.5%
Neutral: 31.0%
Bearish: 30.5%

Take the Sentiment Survey.

AAII Asset Allocation Survey

Cash allocations fell to their lowest level since May 2015, as equity allocations rose to their second-highest level of 2016. More about the latest results.

What’s Trending on AAII

The Week Ahead

We are currently in the lull between third-quarter and fourth-quarter earnings season. Still, six members of the S&P 500 will release results next week: AutoZone (AZO) on Tuesday; Brown-Forman Corp. (BF.B), Costco Wholesale Corp. (COST) and H&R Block (HRB) on Wednesday; and Broadcom (AVGO) and Cooper Companies (COO) on Thursday.

The week’s first economic reports will be the November ISM non-manufacturing survey, which will be released on Monday. Tuesday will feature October international trade, October factory orders and revised third-quarter productivity. The Labor Department’s October Job Openings and Labor Turnover Survey (JOLTS) will be released on Wednesday. Friday will feature the University of Michigan’s initial December consumer sentiment survey.

Three Federal Reserve officials will make public appearances on Monday: New York president William Dudley, Chicago president Charles Evans and St. Louis president James Bullard.

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