AAII Sentiment Survey: Pessimism Falls to a Six-Month Low

Source: Thinkstock

Source: Thinkstock

Pessimism among individual investors is now at a six-month low, according to the latest AAII Sentiment Survey. Neutral sentiment remains at an unusually high level, while optimism is slightly below its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.0 percentage points to 37.2 percent. The rebound is not big enough to keep optimism from being below its historical average of 39.0 percent for the thirteenth time in the past fifteen weeks, however.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, edged up 1.0 percentage points to 41.7 percent. This is the seventh time in nine weeks that neutral sentiment is above 40 percent. Neutral sentiment is also above its historical average of 30.5 percent for the twenty-fifth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.0 percentage points to 21.1 percent. This is the lowest level of pessimism registered in our survey since December 26, 2013 (18.5 percent). The decline keeps bearish sentiment below its historical average of 30.5 percent for the tenth straight week and the thirty-third out of the last thirty-seven weeks.

Despite hitting a six-month low, bearish sentiment remains within its typical range. It is near the bottom of the typical range, however. Historically, unusually low levels of bearish sentiment have been followed by only slightly weaker-than-average market performance (an average twenty-six-week return of 4.0 percent for the S&P 500 versus 4.4 percent for all weeks since September 1987).

Neutral sentiment is above its typical range (more than one standard deviation above average) for the second consecutive week. Historically, unusually high levels of neutral sentiment have been followed by better-than-average S&P 500 returns (an average six-month gain of 7.2 percent). The historical results of unusually high and low AAII Sentiment readings can found in this month’s AAII Journal.

The ongoing streak of twenty-five consecutive weeks with neutral sentiment readings above 30.5 percent is the fourth-longest in the survey’s history. The only longer such streaks were an eighty-two-week stretch in 1987 and 1988, a sixty-five-week stretch in 1997 and 1998 and a twenty-eight-week stretch in 1993.

This week’s special question asked AAII members what factors are most influencing their six-month outlook for stocks. Several members listed more than one factor. The economy topped the list, named by 28 percent of respondents. Many of them (17 percent of all respondents) cited sustained growth or expectations for continued growth. The market was a very close second, named by slightly more than 27 percent of all respondents. About 9 percent of all respondents said valuations were high, though there were others who were encouraged by the market’s resiliency and upward momentum. The geopolitical picture, especially Iraq and Russia, was cited by just fewer than 17 percent of all respondents. Frustration with politics also remained a common refrain, with 13 percent of respondents expressing displeasure with either political infighting or the president’s policies.

This week’s AAII Sentiment Survey results:

  • Bullish: 37.2 percent, up 2.0 percentage points
  • Neutral: 41.7 percent, up 1.0 percentage points
  • Bearish: 21.1 percent, down 3.0 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, r. 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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