AAII Sentiment Survey: Optimism Rises to Three-Week High

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Optimism among individual investors about the short-term direction of stock prices is at a three-week high, according to the latest AAII Sentiment Survey. Pessimism also rose slightly, while neutral sentiment extended its streak of above-average readings.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.3 percentage points to 38.5 percent. Even with the improvement, optimism remains below its historical average of 39 percent for the 14th time in the past 16 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 2.6 percentage points to 39.1 percent. This is the 26th consecutive week that neutral sentiment is above its historical average of 30.5 percent.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.3 percentage points to 22.4 percent. This is the 11th straight week and the 34th out of the last 38 weeks with pessimism below its historical average of 30.5 percent.

The slight increase in pessimism follows what was a six-month low in bearish sentiment. Neutral sentiment remains at high levels, though it is now just below the upper border of what we would we consider to be an unusually high reading (39.4 percent). Keeping some AAII members optimistic is sustained economic growth, the market’s upward trend, and the Federal Reserve’s tapering of bond purchases. Discouraging some AAII members is the pace of economic growth, prevailing valuations, events in Iraq and Ukraine, and frustration with Washington politics.

This week’s special question asked AAII members about the one thing they would change about the current market environment if they had a magic wand to do so. Responses were varied, though they primarily fell into one of four categories. The largest number of respondents (18 percent) said they would alter monetary policy or raise interest rates. This group also includes respondents who want to know how the Federal Reserve intends to end monetary stimulus. The second-largest group (17 percent) said they would alter Washington politics.

These changes include the politicians themselves, regulations, or the tax code. About 14 percent would change the market environment. Some would reduce current valuations, while others said they would end high-frequency trading or dark pools. Changing the pace of economic growth came in fourth, with about 9 percent of respondents saying they would accelerate it.

Here is a sampling of the responses:

  • “Speaking selfishly, stock prices should come down to earth.”
  • “Get better clarity from the Fed on how they are going to unwind quantitative easing.”
  • “I’d stop the high-frequency trading.”
  • “Continued improvement in real job growth.”
  • “Have the Fed raise interest rates sooner.”

This week’s AAII Sentiment Survey:

  • Bullish: 38.5 percent, up 1.3 percentage points
  • Neutral: 39.1 percent, down 2.6 percentage points
  • Bearish: 22.4 percent, up 1.3 percentage points

Historical averages:

  • 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.

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