AAII Sentiment Survey: Optimism Hits a 12-Week High, Exceeds Neutral Sentiment

Source: Thinkstock

Source: Thinkstock

Optimism among individual investors is above its historical average for the first time in twelve weeks. At the same time, neutral sentiment fell below 40 percent for the time in six weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.0 percentage points to 39.5 percent. This is the first time optimism is above its historical average of 39.0 percent since March 13, 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.1 percentage points to 38.3 percent. This is the first sub-40 percent reading since April 24, 2014. Nonetheless, neutral sentiment remains above its historical average of 30.5 percent for the twenty-second consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 1.0 percentage points to 22.2 percent. The drop puts pessimism below its historical average of 30.5 percent for the seventh straight week.

The spread between bullish and bearish sentiment (the “bull-bear spread”) widened to 17.3 percentage points. This is the largest bull-bear spread since February 27, 2014.

This week is the first time bullish sentiment has exceeded neutral sentiment in three months (since March 13, 2014). During the past three weeks, optimism has rebounded by a cumulative 9.1 percentage points, while neutral sentiment has declined by a cumulative 4.9 percentage points. Neutral sentiment is now back within the typical range of its historical readings (less than one standard deviation from the mean), though near the upper end of the typical range.

The resilience of the S&P 500 and its record highs is likely playing a key role in boosting optimism among individual investors. Also helping are continued signs of economic expansion, the Federal Reserve’s tapering of bond purchases and low interest rates. Offsetting this optimism is the pace of economic expansion, Federal Reserve tapering and frustration with Washington politics. Though neutral sentiment has pulled back, many AAII members still remain uncertain about the short-term direction of stock prices or expect stocks to remain essentially unchanged over the next six months.

This week’s special question asked AAII members what industries or sectors they like right now. Energy was the most the popular, picked by nearly a third (31 percent) of all respondents. Technology and health care tied for second, with each named by approximately 18 percent of respondents. Industrials were third, picked by about 13 percent of all respondents.

When we asked the same question in January, respondents said (in order of popularity) health care, technology, banking and finance, and energy.

This week’s AAII Sentiment Survey results:

  • Bullish: 39.5 percent, up 3.0 percentage points
  • Neutral: 38.3 percent, down 2.1 percentage points
  • Bearish: 22.2 percent, down 1.0  percentage points

Historical averages:

    • Bullish: 39.0 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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