AAII Sentiment Survey: Bullish Sentiment Falls 17.6 Percentage Points

Bullish sentiment fell 17.6 percentage points to 40.0% in the latest AAII Sentiment Survey. This is an 11-week low for optimism that stock prices will rise over the next six months. The historical average is 39%.

Neutral sentiment, expectations that stock prices will remain essentially unchanged over the next six months, soared 13.5 percentage points to 27.5%. This is an eight-week high for neutral sentiment. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 4.0 percentage points to 32.5%. This is an 11-week high. It is also the first time pessimism has been above its historical average of 30% since September.

The drop in bullish sentiment occurred as volatility (VIX) returned to the global financial markets. Despite the drop, bullish sentiment remains above its historical average, albeit barely. At the same time, bearish sentiment is only slightly above its historical average. In other words, this week’s results mostly signal a reversion to the mean.

The 17.6 percentage point drop in bullish sentiment was the 26th largest in the history of the survey. Including this week’s decline, there have been 31 occurrences when bullish sentiment has fallen by 17 points or more. What happened afterwards? On average, the S&P 500 was down 0.5% four weeks later and down 1.0% eight weeks later. There is no causal relationship between our survey and market direction (only correlations between the two), however, so actual returns over the next four and eight weeks could be significantly different.

This week’s special question asked AAII members whether the U.S. dollar’s movement impacts their sentiment toward stocks, and if so, whether they have made any recent portfolio changes in response. The majority of respondents said the dollar did impact their sentiment. Many respondents also said that they increased their allocations to international stocks in response. Finally, some respondents stated that they were buying more commodity-related investments (gold, energy, etc.) in response.

Here is a sampling of the responses:

“Yes. I’ve invested more in international and emerging markets mutual funds and a gold mutual fund.”

“Absolutely! I’m adding gold mining stocks, metals and energy plays.”

“I’m shifting towards multinationals.”

“No, but it does impact my views on the price movement of gold.”

This week’s sentiment survey results:

  • Bullish: 40.0%, down 17.6 percentage points
  • Neutral: 27.5%, up 13.5 percentage points
  • Bearish: 32.5%, up 4.0 percentage points

Historical averages:

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

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 at http://www.aaii.com/sentimentsurvey