AAII Sentiment Survey: Neutral Sentiment Continues to Climb​

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Investor optimism bounced back this week and neutral sentiment continues to climb, while pessimism fell.

Bullish sentiment, expectations that stock prices will rise over the next six months, bounced back to 33.1 percent, up 4.8 percentage points from last week. Optimism has not shown a clear direction over the past few weeks, but it still remains substantially below its long-term average of 39 percent.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose another 1.3 percentage points to 44.3 percent. Neutral sentiment has been increasing for five straight weeks. This is also the 19th consecutive week that neutral sentiment is above its historical average of 30.5 percent.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.1 percentage points to 22.6 percent. This puts pessimism below its historical average of 30.5 percent for the fourth straight week.

The current streak of below-average bullish sentiment readings is the longest since a 13-week stretch between August 30, 2012, and November 22, 2012. Neutral sentiment is above its historical average for the longest consecutive period since a 24-week stretch between January 28, 1999, and July 8, 1999. Bearish sentiment has not been above average for four consecutive weeks since April 11, 2013, through May 2, 2013.

Neutral sentiment continues to stay very high. This is a characteristic of investors that we have noticed since the beginning of 2014. Once again, investors seem to be looking for a catalyst to drive the market up or down. The environment remains friendly for equities, but there are international concerns. In addition, valuation is higher than average.

This week’s special question asked AAII members when they expect the Federal Reserve to increase interest rates, given our current unemployment rate and historically low labor participation rate. Responses were mixed, ranging from “pretty soon” to 2016, but the vast majority believe it will be sometime in 2015.

Here is a sampling of the responses:

  • “I think the consensus is the second quarter of 2015. I’ll go with that.”
  • “Not until inflation picks up.”
  • “Mid-2015 if the labor participation rate improves.”
  • “The Federal Reserve has communicated their intentions well, with appropriate options to change as conditions change. For now, they expect to start raising rates in the second half of 2015.”
  •  “I see a slow gradual increase over three years so that the market can adjust to normal interest rate levels.”

This week’s AAII Sentiment Survey results:

  • Bullish: 33.1 percent, up 4.8 percentage points
  • Neutral: 44.3 percent, up 1.3 percentage points
  • Bearish: 22.6 percent, down 6.1 percentage points

Historical averages:

  • Bullish: 39 percent
  • Neutral: 30.5 percent
  • Bearish: 30.5 percent

Charles Rotblut is the author of the new book Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio. 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 here.

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