AAII Sentiment Survey: Optimism Rebounds to Two-Month High​

Source: Thinkstock

Optimism among individual investors hit a two-month high in the latest AAII Sentiment Survey. Neutral sentiment, meanwhile, stayed above 40 percent for a fifth consecutive week.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 6.0 percentage points to 36.5 percent. This is the highest level of optimism registered by our survey since March 20, 2014 (36.8 percent). The improvement was not big enough to keep bullish sentiment below its historical average of 39.0 percent for the eleventh consecutive week, however.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.8 percentage points to 40.3 percent. Even with the drop, neutral sentiment remains above its historical average of 30.5 percent for the twenty-first consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.2 percentage points to 23.2 percent. The drop keeps pessimism below its historical average of 30.5 percent for the sixth straight week. The spread between bullish and bearish sentiment (the “bull-bear spread”) is now at 13.3 percentage points, the widest it has been since March 13, 2014.

The ongoing streak of +40 percent neutral sentiment readings is unusual. The last time neutral sentiment stayed above 40 percent for five consecutive weeks or longer was the six-week period of July 2, 1993, through August 20, 1993. Throughout the entire history of the survey, there appear to have only been six occasions — five occurring before 1990 — when neutral sentiment stayed above 40 percent on consecutive weeks for longer periods.

The new record highs set by the S&P 500 as well as the rebound in technology, biotech and small-cap stocks likely contributed to the higher level of optimism. Also contributing to individual investor optimism are continued signs of economic expansion, the Federal Reserve’s tapering of bond purchases and low interest rates. Offsetting this optimism are the rate of economic expansion, Federal Reserve tapering, the events in Ukraine and frustration with Washington politics. The unusually high level of neutral sentiment suggests many individual investors 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 how first-quarter earnings impacted their six-month outlook for stock prices. Nearly half of all respondents said the profit reports did not impact their outlook. Approximately 15 percent said the earnings reports made them more optimistic. A smaller group, 9 percent of all respondents, said they are more pessimistic about the short-term outlook for stock prices.

Here is a sampling of the responses:

  • “No, I think an improving economic outlook will be more of a favorable driver of stock prices.”
  • “Earnings have not influenced my outlook.”
  • “First-quarter results were dampened by the weather. I expect that we will continue now with the old, slow growth.”
  • “Positively, as good companies have maintained solid results despite the weather’s hit.”
  • “I have not been impressed!”

This week’s AAII Sentiment Survey results:

  • Bullish: 36.5 percent, up 6.0 percentage points
  • Neutral: 40.3 percent, down 2.8 percentage points
  • Bearish: 23.2 percent, down 3.2 percentage points

Historical averages:

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

Charles Rotblut is the author of the new 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.

More From Wall St. Cheat Sheet: