Neutral sentiment jumped above 40 percent as optimism fell in the latest AAII Sentiment Survey. The increase puts neutral sentiment above its historical average for the 24th consecutive week. The last time we saw a similar streak was in 1999 (January 28 through July 8).
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 9.5 percentage points to 35.2 percent. This large drop follows a three-week cumulative rise of 14.3 percentage points. It also puts optimism back below its historical average of 39 percent for the first time in three weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 6.6 percentage points to 40.7 percent. This is a four-week high. As noted above, neutral sentiment is now above its historical average of 30.5 percent for the 24th consecutive week.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.9 percentage points to 24.1 percent. The rebound puts pessimism at a four-week high. The move was not big enough to keep bearish sentiment from being below its historical average of 30.5 percent for the ninth straight week, however.
Neutral sentiment is back up to an unusually high level (one standard deviation above its historical average). As I discuss in this month’s AAII Journal, the S&P 500 has realized above-average six- and 12-month gains following unusually high neutral sentiment readings.
The drop in bullish sentiment follows a jump to what was nearly a seven-month high in optimism. A pullback in stock prices early in the most recent survey period played a role. There was also reversion back toward the sentiment readings we have been seeing in recent months. Some individual investors remain encouraged by the overall upward direction of stock prices, continued signs of economic expansion, the Federal Reserve’s tapering of bond purchases, and low interest rates. Others are concerned about elevated valuations, the pace of economic expansion, Federal Reserve tapering, and frustration with Washington politics.
This week’s AAII Sentiment Survey:
- Bullish: 35.2 percent, down 9.5 percentage points
- Neutral: 40.7 percent, up 6.6 percentage points
- Bearish: 24.1 percent, up 2.9 percentage points
- 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.