AAII Sentiment Survey: Bullish and Neutral Sentiment Stay Above Average​

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Both bullish sentiment and neutral sentiment extended their streaks of above average readings in the latest AAII Sentiment Survey. Bearish sentiment increased slightly, but continues to stay below its historical average. Bullish sentiment, expectations that stock prices will rise over the next six months, increased 0.8 percentage points to 41.3 percent. Optimism has now been above its historical average of 39.0 percent for five consecutive weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, declined 1.0 percentage points to 31.8 percent. Although this is the second consecutive weekly drop, neutral sentiment remains above its historical average of 30.5 percent for the 10th consecutive week. Bearish sentiment, expectations that stock prices will fall over the next six months, edged up 0.2 percentage points to 26.8 percent. Even with the increase, pessimism remains below its historical average of 30.5 percent for the 23rd time in 27 weeks.

As the numbers show, the trend of cautious optimism and above-average neutral sentiment among individual investors continues. Many AAII members are encouraged by the overall upward momentum of stock prices, earnings growth, economic expansion, the Federal Reserve’s tapering of bond purchases and low interest rates. Some AAII members are fretting about elevated stock valuations, the pace of revenue growth, the pace of economic expansion and Washington politics.

This week’s special question asked AAII members to predict the odds of the current bull market lasting into at least a sixth year on a scale of “very likely” to “very unlikely.” Respondents were optimistic overall with 34 percent saying the chances of the bull market celebrating its sixth birthday were somewhat likely, 16 percent saying likely, and 24 percent saying very likely. Economic growth was the primary reason given. Many respondents also said the sustained low interest rates and the accommodative Federal Reserve policy will help stocks move higher. Less than 15 percent of respondents do not expect the bull market to reach a sixth year (7 percent said somewhat unlikely, 5 percent said unlikely, and 2 percent said very unlikely.) Valuations and underlying fundamentals were the top reasons given for the pessimism.

There were some expectations for greater volatility this year. Slightly more than 8 percent of respondents on both the bullish and bearish side used the words “volatility” or “correction” in their comments. Here is sampling of the responses:

  • “Somewhat likely because of low interest rates and inflation; there are no good alternatives to stocks right now.”
  • “It will last into the sixth year, but volatility will increase.”
  • “I think it is very likely that the bull market will run for a few more years, if only because the Fed continues to pump a massive amount of liquidity into the system.”
  • “The bull market will last longer because the economy is improving.”
  • “Somewhat unlikely since economic conditions are so-so and P/E’s are moderately high.”

This week’s AAII Sentiment Survey results

  • Bullish: 41.3 percent, up 0.8 percentage points
  • Neutral: 31.8 percent, down 1.0 percentage points
  • Bearish: 26.8 percent, up 0.2 percentage points

Historical averages

  • Bullish: 39.0 percent
  • Neutral: 30.5 percent
  • Bearish: 30.5 percent

Charles Rotblut is the author of the new bookBetter 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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